Markets Hit Fresh Highs to Open 2026

U.S. equity markets kicked off 2026 on a strong note, with both the S&P 500 and Dow Jones Industrial Average reaching multiple record highs during the first two weeks of the year. A notable market rotation emerged, with the S&P 500’s equal-weighted counterpart rising more than the cap-weighted index as traders looked beyond technology shares to other sectors, including materials, industrials, and financials. Small-cap stocks have been a standout this year, with the Russell 2000 outperforming the S&P 500 for ten consecutive sessions, the longest such streak since 1990. Early fourth-quarter earnings added to the positive momentum, though mixed reactions in financials suggest investors are weighing guidance and earnings quality, not just headline beats. Despite stretched valuations (the S&P 500 is trading at about 26 times earnings), investor sentiment held up on expectations of continued earnings growth and potential Fed rate cuts later this year.

Mixed Data: Cooling Labor Market & Steady Inflation

Economic data continues to paint a mixed picture. The labor market ended 2025 on a soft note, with the December employment report showing nonfarm payrolls rose just 50,000, well below forecasts, while the unemployment rate edged down to 4.4%(1). Full-year job growth for 2025 totaled 584,000, the weakest annual gain outside of a recession since 2003(1). On the inflation front, the December Consumer Price Index rose 0.3% month-over-month and 2.7% year-over-year, in line with expectations(2). Housing costs remained the largest contributor to inflation, though used-vehicle prices declined, helping temper the core reading. Consumer sentiment rose in early January but remains historically subdued as households continue to adjust to elevated prices(3).

Geopolitical Tensions Drive Safe-Haven Surge

Geopolitical developments also moved markets: Middle East tensions and U.S.–Venezuela frictions fueled safe-haven demand, helping gold and silver hit new records, while oil prices retreated on signals of potential de-escalation with Iran. As earnings season progresses, investors will be looking for confirmation that corporate profits can support current valuations amid policy and macro uncertainty.

Bottom line

The opening weeks of 2026 demonstrated the resilience of U.S. equity markets, which reached fresh records despite an uneven economic backdrop. While the labor market has clearly cooled, with 2025 marking the weakest year for job creation in over a decade, the improving inflation picture and solid corporate earnings provide reasons for cautious optimism. Investors will be watching closely for clarity on Fed policy, with rates expected to remain unchanged at the late January meeting.

(1) Source: Bureau of Labor Statistics, https://www.bls.gov/news.release/empsit.nr0.htm 
(2) Source: Bureau of Labor Statistics, https://www.bls.gov/news.release/cpi.nr0.htm
(3) Source: University of Michigan, https://www.sca.isr.umich.edu/