Markets continue to be in a long-term upward trend, yet the beginning of the year has revealed notable disparities among various sectors. While the overall index appears inconsistent, the underlying indicators are more robust. The equal-weight S&P and the advance/decline line are approaching new peaks, and the TSX has consistently reached new highs, despite the NASDAQ 100 not achieving a new high since late October. This divergence indicates a change in market leadership and a broader range of stocks contributing, which we monitor closely, especially given the recent decline in breadth and momentum indicators.
Beyond the United States, the global expansion that initiated in 2025 has been gaining momentum into early 2026, buoyed by improving PMI indicators and heightened earnings forecasts. Additionally, the U.S. dollar has continued to depreciate against key currencies, which may benefit returns from non-U.S. investments when measured in local currencies. Commodity prices are holding steady, with copper making gains, steel manufacturers experiencing significant growth, and oil approaching a breakout, while energy stocks have shown strong performance at the start of the year. Precious metals are still regarded as a long-term investment theme, although it is noted that previous surges can lead to extended corrections over several months.
In sector analysis, financials (such as XLF), industrials, energy/grid sectors (including the GI ETF), transportation/rail, and materials (VAW) have demonstrated enhanced relative strength in the reviewed charts. Conversely, technology (XLK) has declined compared to the overall market. Additionally, we observe initial advancements in defensive sectors and TLT, contributing to the broader assessment.
Key Takeaways This Week:
Market backdrop and breadth:
- The S&P is modestly up in mid-February, and while large-cap tech has weakened, the “average stock” (equal-weight S&P) has been steadily making new highs. The advance/decline line is rising and near new highs, which is constructive.
Rotation away from mega-cap tech leadership:
- The NASDAQ 100 has been unable to make a new high since late October, broke down from a wedge pattern, and remains a focus point—strength is leaving crowded large-cap tech and moving to other sectors.
International leadership is strengthening:
- Developed markets ex-US (SPDW) broke out in 2025 and accelerated into January and February. The speaker highlights improving PMI data outside the U.S., strong performance across markets (including Korea, Taiwan, Japan, and the Eurozone), and improving global earnings estimates and stock performance.
U.S. dollar weakness as a tailwind for international exposure:
- The transcript repeatedly notes broad U.S. dollar weakness versus major currencies (euro, pound, Aussie dollar, yen, and Canadian dollar), which is framed as supportive for international stocks.
Commodities and precious metals: strong longer-term, potential correction risk:
- Commodities are described as “pretty darn strong,” copper is “playing catch-up,” steel producers are breaking out, and oil is close to breaking out with oil equities strong early in the year.
- Precious metals are viewed as in a longer-term bull market, but the transcript emphasizes the risk of a sizable, multi-month correction (with gold and silver having retraced and recouped about 50% of the initial selloff in recent rallies).
Leadership sectors highlighted this week (excluding Q&A):
- Financials remain strong, XLF continues higher with strength spreading to regional banks; industrials are accelerating; power/grid-linked industrial exposure is highlighted via the GI ETF; transports have broken out; rails are breaking out; materials have broken out via VAW; energy is lifting; while technology shows weaker relative strength (e.g., XLK weakening since October). Defensive areas (consumer staples, utilities, REITs) are showing some improvement, and TLT has behaved a bit better recently—prompting monitoring for any shift under the surface.