Making Sense of a Choppy Start to 2026 – Part II

Six Things You Should Know

1. Equity Markets – were mixed this week with U.S. stocks (S&P 500) declining -1.29% while international stocks (EAFE) rose +1.59 %.
2. Fixed Income Markets – were up this week with investment grade bonds (AGG) gaining +0.85% and high yield bonds (JNK) rising +0.06%.
3. Jobs Report – The labor market kicked the year off adding 130,000 jobs in January, doubling expectations of 65,000. Private payrolls also increased by 172,000 as overall government jobs declined by 42,000. Strong job growth also resulted in the unemployment rate ticking down to 4.3%, with average hourly earnings rising 0.4%.
4. Another Shutdown – As of writing, the Senate has failed to advance a new funding bill, almost assuring a Saturday shutdown of the Department of Homeland Security. The main point of debate in Senate talks remains around what new limits (or lack thereof) will be placed on immigration enforcement. This means many federal employees, including TSA workers, will be expected to work without pay until a resolution is agreed.
5. Cybersecurity Reminder- Scammers are increasingly using Remote Access Tools (RATs) along with phishing emails or texts to take control of devices like phones, tablets, and computers. Once installed, these tools can give cybercriminals access to sensitive information, including your Schwab accounts. These attacks can be hard to spot, so if something doesn’t feel right- like unusual account activity or suspicious messages- trust your instincts. If you sense suspicious activity, please call us immediately or report any concerns to Schwab at 800-515-2157. 
6. Key Insight – [VIDEO & ARTICLE] This week concludes our two-part series, which attempts to make sense of the market-moves so far this year, as well as outline some likely hidden drivers for what lies ahead in 2026.

Insights for Investors

By Tim Mitrovich

Making Sense of a Choppy Start to 2026 – Part II 

To date, here in 2026, the US equity market has largely traded within a tight range of +/- a percent or two from where it began the year. This is not uncommon when markets are being influenced by both good news and meaningful concerns. Last week, in Part I, we covered the first two of our five primary influences on markets, discussing both (1) the repricing of the discount-rate risk and (2) the ongoing debate over whether new AI tools threaten legacy software economics and other legacy industries. Both higher rates and, of course, increased competition, can be significant headlines to valuations and, therefore, stock prices. 

This week, we will discuss the final three themes influencing markets at the moment: (1) the cross-asset volatility shock from the uptick in precious metals volatility that seemed to tighten risk budgets, (2) the key takeaways so far from earnings season, and (3) the macro-data that supports a constructive economic outlook. 

1) Liquidity and positioning: the precious-metals unwind and their knock-on effects 

Alongside equities’ AI re-rating, markets experienced an extreme volatility episode in precious metals in late January. Recent market darlings gold dropped 9%, and silver declined over 30% on Friday, January 30^th alone, of which the latter was the largest such drawdown in history. Much of the weakness in gold and silver was related to margin hikes, which compounded the selloff—a reminder that mechanical de-leveraging can be as important as fundamentals in the short run (Reuters, Feb 2, 2026: https://www.reuters.com/world/india/gold-falls-15-firm-dollar-silver-recovers-over-three-week-low-2026-02-02/).  

Furthermore, on Fundstrat’s Quarterly Outlook call Tom Lee pointed out some powerful historical precedents associated with similar prior declines, noting that there have been three prior occasions when gold fell by similar amounts: January 22, 1980 (-13%), February 28, 1983 (-12%), and April 15^th, 2023 (-9%), and in all three cases the subsequent two years saw declines in gold prices (see chart below). Specifically, in those prior three instances, gold was negative 1 year later all three times, with an average drawdown of over 9%. (Source: Fundstrat, 2/5/2026)

However, Tom Lee connected the metals move back to equity risk appetite, a point of prediction for him of late. In a CNBC interview summarized by Finviz, Lee described the prior gold-and-silver surge as a “vortex” pulling risk appetite away from the broader stock market, and suggested the drawdown could be the “pause that refreshes” a broader bull market by releasing capital back into risk assets (Finviz, Feb 2, 2026: https://finviz.com/news/294966/gold-silver-tumble-is-this-green-light-for-tech-stocks-tom-lee-says-metals-drop-is-pause-that-refreshes-bull-market). 

As evidence, he pointed out that in those prior three instances where gold had a single-day decline of over 9%, the S&P 500 was positive all three times with an average return of over 14%. (Source: Fundstrat, 2/5/2026) 

Whether you agree or not, the mechanism is relevant, and when crowded hedges unwind, correlations can spike, and positioning often gets trimmed or even violently repriced. For those trying to chase momentum plays, this is a risk that you must recognize and be very mindful of. 

2) Earnings season: dispersion is the feature, not the bug 

Earnings and guidance amplified the recent dispersion between market winners and losers, with notable tech names getting punished after their earnings calls. AMD plunged after projecting a revenue dip, dragging peers and weighing on tech-heavy benchmarks, even as other non-tech parts of the market held up (Reuters, Feb 4, 2026: https://www.reuters.com/business/futures-muted-ai-jitters-batter-software-alphabet-adp-focus-2026-02-04/). Similarly, Microsoft plunged over 10% after its earnings call on fears of AI spending and the ever-increasing growth expectations as a result of that spending. (Reuters, January 29, 2026: https://www.reuters.com/business/autos-transportation/investors-punish-big-tech-ai-spending-that-delivers-slower-growth-2026-01-29/) 

At a time when interest rates and AI narratives are constantly shifting, the market’s tolerance for weak guidance appears especially low. Torsten Slok’s broader framework helps interpret that selectivity. In Apollo’s 2026 Outlook, he calls AI a central macro driver and warns that in a slowdown, “non-AI-related equities” could face meaningful earnings risk—a reminder that the split between AI-exposed and non-AI-exposed businesses can widen when growth decelerates, and valuations are rich (Apollo, 2026 Outlook: https://www.apollo.com/institutional/insights-news/insights/outlook/2026/from-apollos-chief-economist). 

While there is no questioning the importance of the tech sector to the US equity market, given its weighting to the index, it is also important to once again note the participation from an ever-broadening number of companies both domestically and globally. On that note, for this quarter’s earnings season, 65% of S&P 500 companies have released earnings so far, and of those, 78% have reported positive earnings growth year-over-year, with the median “beat” at +5%. Value-oriented sectors, such as healthcare, consumer staples, and utilities, have averaged a beat rate of 85%, demonstrating a broadening strength within the market. (Source: Fundstrat, 2/11/26) As a result, value equities (as reflected by iShares MSCI USA Value ETF) are up over 11.5% through February 11^th, 2026, versus the S&P 500 being just over 1.5%. 

This rotation, if it continues, could result in some temporary volatility but should also bring about a healthier market with more participants than a handful of tech stocks. 

3) Macro crosscurrents: strong manufacturing, mixed labor signals, and global FX stress 
 
The macro data flow has been supportive but uneven. Of special note, as mentioned above, was the ISM manufacturing PMI jumping to 52.6 in January despite the challenging global macro headlines. This was its strongest growth reading in nearly four years—helping cyclicals and supporting the “resilient growth” narratives (Source: Bloomberg, 2/4/26). 

Labor signals, however, have been choppier until this week. Reuters reported on February 4 that ADP private payroll growth was weaker than expected, complicating the picture as investors waited for delayed labor data releases after a partial government shutdown ended (Reuters, Feb 4, 2026: https://www.reuters.com/business/futures-muted-ai-jitters-batter-software-alphabet-adp-focus-2026-02-04/). However, the big news this week, which may help people view recent concerns in a more positive light, was Wednesday’s jobs report, which blew away expectations. As reported by TrendMacro, “130,000 net payrolls was a big beat, and it is affirmed by our multi-factor model. The annual benchmarking exercise reduced the total number of payrolls by 1 million, 403,000 of which was assigned to 2025. January 2025 now joins June, August and October as a month of payroll contraction (still no consecutive months). This was all expected, and all in the past. More than all the payroll growth in January was in the private sector, with a contraction of 42,000 government payrolls. Wage growth was modest, given a sharp downward revision to December. Rate cut expectations tightened somewhat this morning, but we still forecast three cuts in 2026.” 

In the aftermath of that report, equities surged before giving up their gains, as the market tried to reconcile positive news regarding the labor market and US economy against the possibility of a less dovish Fed going forward in 2026.  

Torsten Slok’s preferred approach to disparate data is to triangulate it with daily/weekly indicators. In his January 26 Daily Spark, he summarized a dashboard suggesting the economy was still performing well—including rising job postings, solid same-store retail sales, and a capex boom linked to policy support (Apollo Academy, The Daily Spark, Jan 26, 2026: https://www.apolloacademy.com/the-daily-spark/). 

Ultimately, we’ll take the continued economic strength as a catalyst over the begging for more monetary support, based on the belief that the former is not only healthier, but more sustainable as a pathway to continued profit growth and consequently, future market strength. 

In Summary 

Over the last few weeks, the equity market was pulled by three primary overlapping forces: (1) a discount-rate regime debate driven by Fed policy and leadership uncertainty,  (2) an AI-driven software re-rating colliding with an AI capex spending boom, and (3) a positioning unwind in crowded hedges from global currency to the popular metals trades in gold and silver.  

While dispersion and rotation are likely to remain  defining features of risk markets in 2026, and as such could bring more bouts of volatility than we saw in 2025 (with all due respect to last year’s Tariff Tantrum), that does not spell “doom” for equity markets in 2026, particularly given the last two themes we discussed regarding continued corporate earnings strength along with solid economic fundamentals. 

The rangebound market with its upside and downside volatility is not, in our view, indicative of impending risk so much as it is a result of a market still trying to resolve the dilemmas above, as well as a potential shift (vs. concerns of a vacuum) in market leadership. 

Earnings growth is still solidly positive, and the fact that more sectors are participating, while it is a change, it is a good change.  

As always, we are here for you and those you care about. 

Have a great holiday weekend, 

Tim and the team at TEN Capital

Data, Just the Data

• U.S. Retail Sales – were flat in December despite expectations of a 0.4% gain. Year-over-year, sales are up 2.4%, the smallest annual gain since September 2024.
• U.S. Jobless Claims – initial claims fell by 5,000 last week to 227,000 remaining near 2-month highs. Continuing claims also moved higher by 21,000 to 1,862,000.
• U.S. Existing Home Sales – slumped 8.4% in January to an annualized rate of 3.91 million from December’s 3-year high of 4.35 million. This marked the sharpest monthly drop in almost 4 years.
• Consumer Price Index – CPI rose 0.2% in January and is up 2.4% from a year ago. The “Core” CPI figure also cooled to 2.5% year-over-year.