The stock market index has had very little movement over the past 4 months. The S&P 500 closed October at 6840, and it closed February at 6878 according to data from LSEG - less than a 1% move in 4 months. Indeed, according to data from Bespoke, the first 2 months of 2026 have seen the least movement in the market since the start of 1966. Remember this lack of volatility follows last year’s 20% pullback in March/April and subsequent 35% rally through the early fall. As we have written before, extremes in one direction are often followed by extremes in the other direction. Last year’s unusual volatility has given way to a period of rare stability. But we should not expect this calm period to last indefinitely. We will not guess whether the next significant move will be up or down. But our base case remains unchanged: a modest positive year in an ongoing bull market, albeit with at least one significant pullback along the way.
The theme of the year has continued to be the pullback in technology stocks, particularly software companies. Last fall, the market was rife with fears of an “AI Bubble” – the idea that money spent on developing AI would not generate sufficient returns to justify the investment. This year the fear has been the opposite – that AI will be so effective that it will quickly wipe out entire industries and displace many white-collar workers. Clearly these two ideas cannot both be true. As we’ve discussed in our mid-month market presentations, we think the truth is somewhere in the middle. Some AI spending will prove to be unprofitable. The technology will disrupt some industries. But on balance, we expect the technology to be a net benefit for economic productivity, corporate profitability, and investors. As is often the case with new technologies, the market simply needs time to digest its impact.
Notably, we point out that valuations in mega-cap tech stocks have decreased to the point where they are below that of low-growth industries like Consumer Staples. Additionally, the software industry is its most oversold since 2008 according to the data from Evercore, and the recent high volume “waterfall” selling is often associated with bottoms. We characterize much of the selling in technology as “throwing the baby out with the bath water”, and there is reason to think it has run its course.
Outside of technology sector, the broader market is generally performing quite well. Previously unloved sectors have come to life, and many measures of market breadth are at highs. This is an important sign that the market is on healthy footing, and it raises the odds of a positive year. Earnings data has been strong as well, with 14.2% corporate profit growth from last year among S&P 500 companies, according to data from Factset. While this strong growth was largely expected, it does reinforce the overall positive backdrop.
We are hesitant to chase recent strength in the Energy, Materials, and Consumer Staples sectors which have seen large valuation increases without corresponding growth in earnings expectations. But there has been another rotation in the market recently that we do think is worth acting on. International stocks – persistent laggards for most of the last 15 years – have outperformed US stocks to the point where several important long-term indicators are flipping. International stocks are now ranked #1 (US stocks #2) on the asset classes rankings of one of our third-party research partners. This is a significant development, and our process demands that we respond to it. Expect to see some inclusion of international investments in portfolios in the coming weeks.
As we write this, the market is digesting military action in the Middle East. We have often written that long-term investors are best served by maintaining discipline through such periods, and we see no reason to treat this period differently. As always, we will continue to follow our objective indicators to guide client portfolios through changing markets.
This is being provided solely for informational and illustrative purposes, is not an offer to sell or a solicitation of an offer to buy any securities. The factual information given herein is taken from sources that we believe to be reliable but is not guaranteed as to accuracy or completeness. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation or needs of individual investors. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis or trading strategies that differ from the opinions expressed here.
