Stocks to Record Highs Fueled by Labor Data
The U.S. stock market wrapped up the first full trading week of 2026 on a high note, with the S&P 500 clinching a fresh record close and solidifying a winning week. All major indices advanced, led by the $Dow Jones(.DJI)$ (+2.32%) and the $NASDAQ 100(NDX)$ (+2.22%), which outperformed the $S&P 500(.SPX)$ (+1.57%). This strong performance, particularly the Dow’s leadership, was consistent with the price action and technical analysis highlighted in this publication last week.
Friday’s session was primarily driven by a mixed December employment report that investors ultimately interpreted as a signal of underlying economic resilience. Nonfarm payrolls increased by 50,000 for the month, falling short of the 66,000 forecast, while downward revisions to prior months removed 76,000 jobs from previous estimates. Despite the headline miss on job creation, the unemployment rate ticked down to 4.4%, defying expectations for it to hold steady at 4.5%. This data portrays a labor market that is cooling rather than collapsing. It preserves the narrative that the Federal Reserve has room to continue its rate-cutting cycle to support growth in the first quarter.
Corporate and policy headlines fueled significant divergence in specific sectors, particularly technology and housing. Intel shares surged 10% after President Trump touted the government’s profitable equity stake in the company, a move that sparked a broader rebound across chip stocks. Simultaneously, homebuilders such as D.R. Horton and KB Home rallied on prospects of lower borrowing costs. These gains followed reports that the administration is considering a $200 billion purchase of mortgage-backed securities, a proposal that pushed mortgage rates to three-year lows and reignited interest in the housing sector.
5 Day Gains per Sector:
Last week, we observed strength in the Energy, Materials, and Utilities sectors, accompanied by significant declines in Technology, Financials, and Consumer Discretionary. This week, however, the movement in the stock market has been broad, with most sectors participating in the rally.
There are some notes about the main drivers that are worth studying:
1. Consumer Discretionary ( $Consumer Discretionary Select Sector SPDR Fund(XLY)$ +5.12%) : Pure “Risk-On” sentiment. Being the clear leader indicates investors are betting on a resilient US consumer and economic growth rather than a recession. This sector is heavily weighted by Tesla and Amazon, so a rebound in those mega-caps typically forces this sector to outperform ( $Amazon.com(AMZN)$ rallied and $Tesla Motors(TSLA)$ is bouncing after reaching our bearish target).
2. Materials ( $Materials Select Sector SPDR Fund(XLB)$ +4.64%): The “Reflation” Trade. A surge in materials often signals that the market expects global industrial demand to pick up.
3. Industrials ( $Industrial Select Sector SPDR Fund(XLI)$ +2.50%): Economic Confidence. Money flowing into Industrials suggests institutional rotation out of pure speculation and into “real economy” stocks (transportation, defense, manufacturing). It validates the rally we saw broadening beyond just Tech.
4. Energy ( $Energy Select Sector SPDR Fund(XLE)$ +2.23%): Value Rotation & Geopolitics. Energy acted as a stabilizer. With oil prices holding firm, this sector attracted capital looking for undervalued cash flows and a hedge against potential geopolitical flare-ups.
5. Utilities ( $Utilities Select Sector SPDR Fund(XLU)$ -1.55%): This was the only sector in the red. Utilities are considered “bond proxies” (defensive dividend payers). When investors are confident (buying XLY) or when bond yields rise, they rotate out of safe havens like Utilities and vice-versa.
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