As you start the new year, so it often goes. In six of the past seven years, the S&P 500 moved for the remainder of the year in the same direction as it did during the first five trading days of January. Since 1950, the index's direction over these periods has matched in 68% of cases. Therefore, it is unsurprising that the strong start of US stocks in early 2026 has bolstered optimism.

S&P 500 Early-January Performance and Annual Trajectory

Investors are watching the seasonal factor closely, in particular, the S&P 500's behavior in January. Early in the year, long?term players form and rebalance portfolios, so the second month of winter often sets the market direction for the next 11 months.

A notable feature of early 2026 is an intensification of rotation processes — reallocating portfolio weight away from tech stocks toward other, more economically sensitive sectors. As a result, the Dow Jones is heading toward the psychologically important 50,000 mark, while the Nasdaq 100 is stuck in consolidation. Constituents of the Nasdaq are showing mixed performance, with Alphabet rising, while Oracle falling.

Defense stocks looked best of all. They finished in the green on Donald Trump's intention to increase military spending by $1.5 trillion.

Smaller?cap stocks also got off to a strong start. The Russell 2000 outperformed the Nasdaq 100 by 4 percentage points over the first five trading sessions, notching the second?best start on record, behind only 2021.

Russell 2000 vs. Nasdaq 100 Spread Dynamics

According to Royce Investment Partners, the strength of small caps is a long?term story. They were undervalued for a long time, so the current rotation is beneficial for the Russell 2000.

The stock market is preparing for two major events — the jobs report and the Supreme Court's verdict on the legality of White House tariffs. Strong nonfarm payroll data would reduce the likelihood of a Fed rate cut in March and put pressure on risk assets, including the S&P 500. Conversely, a court decision overturning import duties could lend support to the broad index.

Wells Fargo estimates that refunds of tariff collections would boost US corporate profits by an additional 2.4% this year. Tariff repeal would act as a kind of fiscal stimulus for US corporations and be positive for the equity market as a whole.

Technically, the daily chart shows that the S&P 500 staged a rebound from fair value at 6,900. A successful retest of that level would increase the risk of a pullback toward at least 6,825 and provide a basis for selling the broad index. Conversely, a return of the price to the bar's high near 6,931 would be a strong argument for going long in hopes of restoring the uptrend.