Weekly Investment Perspective

U.S. markets experienced a challenging week, as major indices posted back-to-back weekly declines amid geopolitical tensions and sector-specific weakness. The S&P 500 and Nasdaq both finished the week slightly lower, while the Dow Jones Industrial Average lagged modestly, underscoring broad market caution entering the heart of earnings season. Tech stocks in particular faced pressure following disappointing results from Intel and renewed tariff concerns, contributing to late-week volatility.

A notable catalyst for market swings was renewed geopolitical uncertainty, particularly tariff threats involving Europe that triggered significant selling pressure mid-week. These headlines weighed on risk assets, while traditional safe havens such as gold and silver saw strong performance, with gold nearing record highs as investors sought refuge amid policy and trade concerns. President Trump walked back some of the rhetoric later in the week, allowing for a recovery in the equity markets.

Last week’s economic indicators painted a picture of an economy navigating the transition into the new year with moderate momentum. Initial jobless claims came in slightly below expectations, suggesting the labor market remains relatively stable despite some cooling from prior peaks. Housing data showed existing home sales declining modestly, reflecting the ongoing impact of elevated mortgage rates on affordability. Manufacturing activity indicators released mid-week revealed continued softness in the sector, with new orders remaining subdued. However, the services sector continues to demonstrate resilience, supporting overall economic activity.

All eyes remain on the Federal Reserve’s upcoming policy decision this week. Markets currently expect the Fed to hold interest rates steady following three prior rate cuts in 2025, even as inflation readings have remained stubbornly above target in key measures. Commentary from Fed officials will be scrutinized for signals on the path of future monetary policy and balance-sheet normalization.

Fourth-quarter earnings reporting kicked off in earnest last week, and early data suggests that a solid majority of companies have beaten consensus expectations, albeit with more muted growth than in prior quarters. Current estimates are for the S&P 500 to grow earnings 8.2% per FactSet (full year 2026 consensus at 14.6% y/y), marking what would be the tenth consecutive quarter of annual earnings growth if realized.

Microsoft, Meta Platforms, Tesla, and Apple are slated to report results this week, marking the busiest stretch of earnings from the “Magnificent 7.” These reports will be critical in shaping investor sentiment on AI investment trends and capital allocation strategies for 2026. Financial heavyweights such as Visa, Mastercard, General Motors, and energy leaders Exxon and Chevron are also set to release quarterly results, offering clear visibility into consumer spending, industrial demand, and energy market dynamics.

2026 The Long View | First Merchants Bank