I went to an awesome car show in Southern California last weekend. They had some amazing supercars with a few having tires nearly as wide as Formula 1 cars. Wide tires are cool but not nearly as cool as a wide traction stock market.
As the new market year begins, one theme is already developing, and that is the dispersion and broadening out of the stock market. After several years where a handful of mega-cap technology stocks dominated S&P500 performance, the first two weeks of 2026 have looked unexpectedly different. Early on, the so-called Magnificent Seven is negative for the year, while the small-cap heavy Russell 2000 Index is outperforming the tech-heavy Nasdaq 100 Index consistently.
Part of this shift seems to be driven by the belief that the economy is becoming a “Goldilocks economy” where inflation is not too hot (overheating) or too cold (recession) and conditions are just right for the companies we invest in to be profitable. If this is the case, the rest of the S&P500 (the normal 493), excluding the Mag7 and smaller companies, will have a tailwind this year
There are additional factors that could be contributing to the market’s broadening. Investors have their fingers crossed that the Fed will become more cooperative after Chairman Powell’s term ends in May. There is also speculation that lower-income consumers may get some stimulus money in the form of a “Tariff Rebate”, which would drive up retail sales in the US. There is also hope that this year AI will dramatically improve productivity gains, which will add earnings across the market.
It might be a little too early to celebrate. Early trends in any new year should be approached with some caution. This is because there is a lot of repositioning going on, whether employees are changing their allocations in their 401(k) or institutional managers are doing some tactical jockeying. Often, the themes that work right out of the gate give back some of their gains as the initial burst of activity settles down. In most years, it is not until mid-February or early March that we really see sustainable trends start to show themselves.
The first test of this trend will be on January 28th, when, during the heart of earnings season, Microsoft (MSFT), Meta (META), and Tesla (TSLA) all report earnings. That could be the first test to see if there truly is a rotation away from the tech megacaps. If the market continues to push up smaller companies even after the mega caps report, then there is a strong chance we will actually see a significant broadening in the market.
While the early signs of broadening are exciting and show great potential, we must remember that January is known for false starts and sharp rotations that don’t always last. It will be worth watching over the next few weeks to see if this is the beginning of a new market regime or simply another January market tease. For now, it’s wise to stay flexible and watch to see how the market responds to the major tech companies’ earnings reports.
Those wide traction wheels are fine for doing burn outs in California but here in the Midwest we know they are difficult in snow and icy conditions like many of us are experiencing. Good all terrian tires are good for this time of year and only time will tell which “market tires” work out the best in 2026.
Have a blessed week!
Richard Baker
Opinions voiced above are for general information only & not intended as specific advice or recommendations for any person. All performance cited is historical & is no guarantee of future results. All indices are unmanaged and may not be invested directly.
All investing involves risk, including loss of principal. No strategy assures success or protects against loss.
The economic forecast outlined in this material may not develop as predicted & there can be no guarantee that strategies promoted will be successful.
All index data from FactSet.
Fervent Wealth Management is a financial management and services entity in Springfield, Missouri.