Remember that electric feeling at the start of the year when stocks just kept climbing? Yeah, that vibe is cooling off a bit right now. Markets kicked off 2026 with real enthusiasm, but as we move deeper into January, the broad rally is starting to splinter. Sectors are rotating fast, geopolitics won’t stay quiet, and investors are pausing to see what comes next.
What’s Happening in Markets Right Now
US equity futures are basically flat this morning, with small caps lagging a touch. The big story isn’t a dramatic drop—it’s the shift underneath the surface. Money is moving out of last year’s winners and into areas that have been waiting for their moment. Energy, materials, and regional plays are catching bids while some of the mega-cap tech names take a breather.
Over in Europe, indices are mixed. The UK is holding up better than France, and miners are getting a nice lift from sky-high metal prices. Asia, though, is still riding high—the region’s benchmark is up solidly year-to-date, with Chinese shares leading the charge on hopes of more stimulus and sector support.
I’ve always found these rotation periods fascinating. They often signal that the market is healthy enough to broaden out rather than relying on just a handful of names. But timing them? That’s the hard part.
Commodities Stealing the Show
If you’re wondering where the real action is right now, look no further than commodities. Base metals are on an absolute tear, with copper pushing to levels we haven’t seen in years. That’s not just noise—it’s potentially inflationary, and markets are paying attention.
Oil is bouncing too, partly on developments in Venezuela and expectations that production could eventually ramp up under new leadership. Precious metals are firm as well, with investors treating them as the usual hedge when geopolitical headlines get spicy.
Here’s what stands out to me: strong commodity demand often reflects real economic activity picking up, especially in places like China. When industrial metals surge like this, it’s hard to argue the global economy is falling apart.
- Copper trading at multi-year highs
- Oil extending recent gains despite initial dip
- Base metals index at strongest level since early 2022
- Silver outperforming gold on industrial demand
Geopolitics Refusing to Take a Back Seat
Let’s be honest—geopolitical risk rarely stays off the front page for long. Right now, Venezuela dominates the conversation. The transition away from the previous regime is creating both uncertainty and opportunity, especially for energy companies.
There’s talk of US firms potentially helping rebuild infrastructure, which could mean significantly higher output down the line. At the same time, near-term disruptions are possible as the country stabilizes. It’s classic risk/reward territory.
Elsewhere, tensions around Greenland and ongoing situations in the Middle East and Asia keep the risk premium alive. Markets have largely shrugged these off so far in 2026, but that complacency can shift quickly.
The next leg higher in stocks will depend partly on how central banks respond to incoming data and whether geopolitical risks stay contained.
The AI Trade Still Has Legs
Even as the broader rally pauses, the AI theme refuses to fade. Major chipmakers are front and center again after product announcements and confident commentary about demand.
New generations of processors are moving into production faster than expected, and executives are openly saying supply—not demand—is the constraint. That kind of language tends to keep investors engaged.
In my view, AI isn’t just a 2025 story anymore. The infrastructure build-out phase is still in early innings, and that supports related stocks even when leadership rotates elsewhere temporarily.
- Next-gen data center chips entering production
- Strong commentary on demand outlook
- Related software and infrastructure names participating
- China demand remaining robust despite restrictions
Bond Yields and Currency Moves
Treasury yields are edging higher this morning after yesterday’s dip, with the curve steepening a bit. The dollar is bid against most currencies, though moves are modest.
European bonds are outperforming after softer regional inflation readings, keeping rate cut expectations alive across the Atlantic. Currency markets remain relatively calm—always a good sign when risk assets are trading near records.
One thing I’ve noticed over the years: when the dollar strengthens alongside rising stock markets, it often reflects positive growth expectations rather than fear.
Sector and Style Rotation in Focus
The real story underneath the flat futures is rotation. Defensives led for a while, now cyclicals—especially energy and materials—are taking the baton.
Small caps are mixed, value stocks are participating, and international markets (particularly Asia) are outperforming. This broadening is generally healthy, but it can feel uncomfortable if you’re concentrated in last year’s leaders.
US exceptionalism appears to have peaked, creating opportunities elsewhere in global equities.
– Market strategist
European miners are surging, energy names are strong, and financials are getting a lift from higher rates and improving economic signals. Meanwhile, some consumer discretionary areas are lagging.
What to Watch This Week
We’re entering a busier period for economic data. Services PMI numbers today will give us fresh insight into the dominant part of the economy. Central bank speakers are out in force, and any commentary on the rates outlook will move markets.
Jobs data later in the week will be crucial. Strong numbers could temper rate cut expectations; weak readings would reinforce them. Either way, clarity helps.
- Final services and composite PMIs
- Central bank commentary on policy path
- Ongoing corporate earnings and guidance updates
- Geopolitical developments, especially Venezuela
- Commodity price sustainability
The bottom line? Markets are digesting gains, rotating into new leadership, and waiting for the next catalyst. That doesn’t mean the bull market is over—far from it. But the easy part of the rally might be behind us.
In my experience, these periods of consolidation and rotation often precede the next leg higher, especially when fundamentals remain supportive. The global economy is growing, corporate earnings are holding up, and liquidity conditions are still favorable.
Of course, risks exist. Inflation could reaccelerate with strong commodity prices. Geopolitics could escalate. Policy mistakes are always possible. But pricing in disaster when markets are making new highs has rarely been a winning strategy.
For now, the path of least resistance still feels higher, albeit with more volatility and dispersion along the way. Diversification across regions and sectors makes more sense than ever.
Stay nimble, keep an eye on the data, and remember that markets climb walls of worry. The current environment has plenty of worries—but also plenty of reasons for optimism.
What’s your take—are we seeing a healthy rotation or signs of fatigue? The comment section is open, as always.
