Hope you are all doing well and that your 2026 is off to a great start. The major U.S. indexes posted fractional declines as stocks failed to maintain the previous week’s upward momentum. The S&P 500 finished the week 0.5% below a record high that it set on Monday. Many times, in the past I have told you to drown out the noise and market volatility caused by headlines and stay focused on the fundamentals which continue to be strong. Now is one of those times. That being said it has been a crazy start to the year so far this year we have had major events in Venezuela, Iran and possibly Greenland. More importantly to markets the DOJ launched a criminal investigation into Fed Chair Powell. Additionally, the White House proposed banning institutional investors from buying single family homes. Fannie Mae and Freddie Mac were instructed to buy $200 billion of mortgage bonds and the White House wants a one year 10% credit card rate cap. Despite the constant stream of headlines, I expect the overall direction of the stock market over the next year and longer will continue to be higher. That being said, if the holidays have left your cash and safe assets a bit low then now would not be a bad time to take some gains and replenish your safe money. Only raise cash if there is money you know you will be spending in the next 6 months. With credit cards in the headlines all week I have broken down this week’s update by paraphrasing credit card taglines.
“There are some things money can’t buy. For everything else there’s Military.”
Apparently, Greenland is one of the things money can’t buy. The question is will the President use the military to secure his long-coveted asset. He seems serious about potentially taking it by force. For now, he will try tariffs. Trump plans to impose fresh tariffs on eight allies opposed to his proposed takeover of Greenland. A move that has drawn the ire of European leaders. He announced a 10% tariff on goods from Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands and Finland. The new round of tariffs would come into force on February 1st and could later rise to 25%. Trump has indicated the tariff will last until a deal is reached. The Supreme Court is expected to rule this month on the legality of tariffs imposed under the International Emergency Economic Powers Act (IEEPA). Although regardless of the decision I don’t expect any material change in trade policy. As the administration will undoubtedly find different powers to rely on to levy similar tariffs.
“Small caps, don’t leave home without it.”
Small caps continued their dominant performance. The Russell 2000 outpaced its large-cap peers by a wide margin for the second week in a row. Marking a sharp rotation from small caps’ lagging 2025 performance. With its more than 2% weekly gain, the Russell 2000 Index is up nearly 8% on a year-to-date basis versus less than 2% for a comparable large-cap index. I still think growth portfolios should be more heavily weighted to large cap stocks, but I think the rally in small caps is indicative of an economy that is starting to get stronger. The U.S. economy is coming off strong showings of late. Real GDP rose 3.8% in the second quarter and 4.3% in the third. Estimates predict another 2% or more increase in the final quarter of 2025.
“What’s in your wallet?”
Apparently, consumers still have some money left in their wallet. Consumer spending has remained resilient which is a large reason why the economy is so strong. We got further evidence of that this week. U.S. retailers posted a slightly larger-than-expected increase in sales during November relative to the previous month, with a 0.6% gain versus economists’ consensus expectations of 0.4%. Furthermore, it is estimated that households are set to receive $100 billion–$150 billion in additional tax refunds due to last year’s Big Beautiful bill. The bill enacted retroactive cuts that were not reflected in most employees’ 2025 tax withholding. That over withholding reversal could help keep consumer spending strong.
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