Weekly Stock Market Update & SPY Technical Analysis
The Russell 2000 (IWM) outperformed the S&P 500, Nasdaq, and Dow Jones in January as capital flowed to small-cap stocks to kick-off the new year. This is historically a seasonal tendency driven by a phenomenon called the “January Effect,” here are the reasons this happens:
- Tax-Loss Harvesting: Investors often sell "losers" in December to claim tax losses, then buy back into the market in January, pushing prices up.
- Portfolio Rebalancing: Institutional investors often reallocate capital to smaller, higher growth names at the start of a new year.
During this time, other parts of the market were sitting idle. Large-cap tech mostly consolidated apart from memory stocks like Micron (MU) and Sandisk (SNDK).
February’s Focus:
Earnings season is still going in full swing. Last week, we saw numbers from Microsoft, Meta, Apple, and Tesla…the first four of the “Magnificent 7” stocks. This week, Alphabet (Google) and Amazon will reveal their earnings. Google’s numbers are particularly important because they’ve become an AI leader. The company created its own in-house chips, open sourced software, chatbots, AI agent capabilities, and more. Their existing customer base and massive capital moat has allowed them to deploy and test these solutions, perhaps making them the closest company to see a feasible and sizable return on their AI investment (a topic that will remain big for 2026).
The market recognizes Google’s dominance in AI…so much so that it has become the second large company by market cap behind Nvidia. With that in mind, their numbers will be crucial…a company worth that much can influence the tech industry as a whole based on what it delivers.
Other notable earnings this week: Palantir, AMD, Eli Lilly, Amazon.
Trump’s new Fed Chair Nominee:
Investors may have to get familiar with the name Kevin Warsh for at least the next four years after President Trump nominated him to take Fed Chair Powell’s job in May. Warsh is seen as a “hawk,” which ironically misaligns with Trump’s push for lower interest rates, but he has shifted his tone in recent times, citing an AI productivity boom that will allow the economy to grow faster without triggering inflation. However if inflation proves sticky, markets are afraid that he’ll return to his hawkishness and increase interest rates to control it.
Warsh’s position on The Fed’s balance sheet is also much different than that of Powell. He wants balance sheet reduction and less “money printing.” The Fed’s balance sheet has ballooned since 2008 they stepped into “rescue” markets following The Great Financial Crises, and it grew even bigger following Covid’s money injection. A reduction in the balance sheet means less liquidity in the system. Less liquidity = less easy money. High risk assets like crypto and other speculative stocks have all enjoyed a decade of high liquidity, fueling prices higher, but a Fed that plans to reduce liquidity can hurt these. The winners could be small-cap stocks that thrive in low interest rate environments.
We don’t yet know what exact measures Kevin Warsh will take, which leaves markets a bit uncertain in the near-term. Investors will be paying close attention to any comments he makes between now and then, as they could hint at what path he plans to take when he takes office.
Labor Market:
The U.S. labor market has been a big topic since late last year, with signs that hiring is slowing, especially for younger Americans. The unemployment rate has risen to its highest number since 2021, which has complicated The Fed’s approach to controlling inflation. Lower rates typically encourage hiring, but sticky inflation has made it difficult to slash rates quickly as it could reignite demand (causing prices to go up). With that said, investors will be paying close attention to this week’s job market data…we’ll be covering the numbers when they are released this week in our Hyper Stocks Pro group.
SPY Technical Analysis:
The volatility index (VIX) ticked higher last week as large indexes violently swung to close out the month. SPY’s big resistance in focus remains 698.96, which is the all time high mark.