Dear traders, dear stock market friends.
The Dow Jones is up 2.7 % since the beginning of the year, putting it well ahead of the S&P 500 (+1.4 %) and the Nasdaq 100 (+1.1 %). In recent weeks, traditional industrial shares have been among the leading stocks. In contrast, the highly valued mega-cap technology stocks showed relative weakness, while market breadth increased. This sector rotation is basically a healthy normalization and a sign that the market is pricing in more growth optimism and higher economic growth.
Growth forecasts for the year 2026
What we are currently seeing in the market is a rotation away from the highly valued mega-cap techs towards cyclical sectors, above all industrials, financials and classic „old economy“ stocks. This fits the picture: the market is again pricing in more real economic growth, and it is precisely these sectors that typically benefit from this (higher demand, more investment, stronger lending, better capacity utilization).
Growth indicators and forecasts also support this impression: the Atlanta Fed's GDPNow model recently estimated very strong growth of 5.3% for Q4/2025. At the same time, the 2026 forecasts of many economists are back above 2%, e.g. a recent survey shows that an average of around 2.2% is expected in 2026. Goldman Sachs is even more optimistic, citing 2.8% (full-year) as the base scenario for 2026.
In short, if the market believes in solid growth (instead of just „AI hype + rate cuts“), then it is logical that Dow-heavy industrial stocks will perform relatively better.
Moderate consumer prices and producer prices
Important inflation data was published last week and was largely in line with expectations:
- Consumer Prices (CPI) on January 13th (for December): CPI rose +0.3% month-on-month to come in at +2.7% YoY; right in line with expectations. Importantly, Core CPI was slightly cooler at +2.6% YoY, slightly below expectations.
Market reaction: Equity futures reduced losses, Treasury yields fell and the US dollar gave up some of its gains. A sign that inflation fears are subsiding. - Producer Prices (PPI) from January 14 (for November, lagged): PPI rose +0.2% month-on-month (as expected) and was +3.0% YoY. The core rate (excluding energy & food) was +0.0% month-on-month and also +3.0% YoY.
Bottom line: no inflation shock, but also no free pass for aggressive interest rate cuts. This tends to keep interest rate expectations stable and in turn favors value/cyclicals over interest rate-sensitive growth stocks.
Robust economic data
On the economic side, there were also several pieces of economic data last week that fit in well with the „economy is holding up better than many think“ narrative:
- Retail Sales (November) from January 14: +0.6% MoM (above expectation +0.4%), Core Retail Sales were +0.4%.
- Industrial Production (December) as of January 16: +0.4% MoM, also better than expected; Fed data also shows that overall IP is above last year.
- Initial jobless claims (week ending Jan 10): Decline to 198,000, indicating that the labor market remains fairly stable in the short term (even if hiring momentum has become tougher overall).
- Beige Book (January): The Fed describes activity as rising slightly overall; however, the K-shaped consumption pattern is striking (stronger at higher incomes, more price-conscious at low/middle incomes).
- Real Estate: Existing Home Sales (December) rose +5.1% to 4.35M and were above expectations. At the same time, however, Homebuilder Sentiment (NAHB) fell to 37 in January (below expectation of 40).
This mix again fits well with the Dow story: production, investment, the credit cycle and industrial demand are more important for classic Dow sectors than the „perfect“ disinflation scenario for tech.
Reporting season starts with mixed signals
In addition to economic and financial data, the focus is currently on the quarterly results of Corporate America. As usual, the reporting season was opened by the financial sector. The signals so far have been solid, but not euphoric:
- JPMorgan (Jan 13): Results robust overall, but stock still reacted weaker (high expectations / valuation, plus political uncertainty around a debated credit card rate cap).
- Bank of America (Jan 14): Profit above expectations, thanks in part to trading and record high net interest income; the bank also held out the prospect of further NII growth.
- Citigroup (Jan 14): Beat on earnings (adjusted $1.81 vs. expectation $1.67), driven by better deal environment/services. Nevertheless, the share fell over the course of the day, which is a good indication: The market is currently quick to „tick off“ good figures.
- Wells Fargo (Jan 14): Earnings higher but below estimates, stock correspondingly weaker.
- BNY Mellon (Jan 13): Significantly stronger quarter and raised profitability targets.
Conclusion of the first round: The fundamentals are okay to good, but the stock market is currently focusing on guidance, margins, credit quality and political sideshows.
Author: Tobias Schmid
Date: 19.01.2026
