'I think there's room for both,' says Keith Lerner, CIO at Truist Advisory Services, of gains in tech stocks and the rest of the market.
Investors over the weekend began digesting that President Donald Trump's "American First" agenda may now include an attempt at regime change in Venezuela.
Yet domestic pocketbook issues for many U.S. households remain front-and-center as 2026 kicks off on Wall Street.
The coming jobs report will in the first major update on the U.S. labor market since December, when the Federal Reserve cut interest rates for a third time in 2025, and since the monthly unemployment rate ticked up to 4.6% in November.
"The Fed is expected to continue cutting rates, primarily due to the labor market," said Adam Turnquist, chief technical strategist at LPL Financial. "But if there are signs that the jobs market is rebounding or stabilizing, that might pour some cold water on rate-cut expectations."
While finding a job has been difficult for people out of work, Fed officials signaled that further easing of rates could take time to materialize, unless layoffs suddenly pick up.
The Fed has penciled in just one rate cut in 2026 and another in 2027, while the odds favor two cuts this year and the central bank's policy rate dipping to a range of 3% to 3.25% by early December, according to the CME FedWatch Tool.
Yet with short-term rates moving closer to a neutral level, investors have piled into stocks that hope to benefit from an easier borrowing backdrop, especially if the economy reaccelerates in 2026 as many on Wall Street now expect.
Optimism around lower rates pushed the Russell 2000 index RUT of small-cap stocks to a 11.3% gain in 2025, with the index advancing 1.8% from a month ago as of Friday, according to FactSet data. That compares with the large-cap S&P 500 index's SPX return of 16.4% last year, though the large-cap benchmark has only advanced a modest 0.4% over the past month.
"We are starting off the year with that broadening theme back in vogue," said Keith Lerner, chief investment officer at Truist Advisory Services. "We will be looking for follow-through from the fits and starts of last year."
A messy few weeks
Surging technology stocks have been a critical source of stock-market gains over the past few years, but lately they haven't been the only winners.
That can be seen in the performance of the more diversified S&P 500 equal-weight index in the past month versus the tech-centric S&P 500.
"I think there's room for both," said Truist's Lerner of expected gains in tech stocks and the broader stock market this year. "Tech isn't the only game in town."
Healthcare and industrials are among the other areas of the stock market that could benefit from economic growth in 2026, he noted, beyond those already rewarded by investors amid the artificial-intelligence spending race.
This comes as "Magnificent Seven" tech giants Alphabet, Apple, Amazon, Meta Platforms, Microsoft, Nvidia and Tesla Motors keep growing their large footprint in the stock market.
Those stocks' combined share of the S&P 500's total market capitalization stood at 36.9% at the end of 2025, up from 26.9% five years ago, according to Dow Jones Market Data.
Line graph illustrating the surge of "Magnificent Seven" stocks as a share of the S&P 500 index's total market capitalization from December 2020 to December 2025.
Still, the quality of spending on AI has faced new scrutiny lately, with a split emerging in favor of Google parent Alphabet and its new Gemini model launched in November.
Great inflation debate
Trump's first year back in the White House was punctuated by tariff uncertainty, a reordering of global trade and a shake-up in financial markets - but not the recession that some feared.
With peak tariff uncertainty now likely in the past, Trump has said he plans to nominate a new Fed chair soon to replace Jerome Powell once his term ends in May. Importantly, Trump also said that person must not disagree with him about lower interest rates, even if the market is performing well.
This comes as inflation remains perched above the central bank's 2% annual target. Low rates tend to benefit stocks and other assets, the bulk of which the wealthiest U.S. households tend to own. The "wealth effect" of higher asset prices has helped fuel spending and aided the economy, but affordability issues remain a top concern for many other American families.
"The labor market has been front and center, and rightly so," said Turnquist at LPL. "But I don't think we can completely ignore inflation."
Silver (SI00) and gold (GC00) can be options for investors looking to hedge inflation risks. Both metals resumed their rally on Friday after posting their biggest annual gains last year since 1979. Copper (HG00) also climbed after scoring its best yearly advance since 2009.
"It's not just specific to silver and gold," Turnquist said - noting that higher copper prices can end up costing manufacturers more, which can easily trickle down to prices paid by consumers. "If you are making something, it's often going to have copper in it."
That's why, in addition to next Friday's jobs report, Turnquist will be keeping a close eye on the ISM manufacturing index for December that's due for release Monday, even though manufacturing data have been less than promising for a while.
Stocks closed Friday mostly higher, but ended the week on a rather sour note, with the tech-heavy Nasdaq Composite COMP extending its losing streak to five straight sessions.
The S&P 500 fell 1% for the week, while the Dow Jones Industrial Average DJIA shed 0.7% - the biggest weekly losses for both indexes since Nov. 21, according to Dow Jones Market Data. The Nasdaq closed 1.5% lower for the week, according to FactSet.
