The bull market has so far continued into the new year with major indices advancing roughly 1% in January. The sectors have been playing a game of leapfrog where they take turns jumping over each other and advancing. Last year’s winners are pausing, and last year’s laggards are leaping. Energy, one of the worst performing sectors over the last twelve months has so far been the top performer this year. The group is up over 14% and is breaking out of a 12-year base. The path of least resistance is higher. Financials, who had an outstanding year in 2025 are now down 3% to start this one. This is called sector rotation and a staple of all healthy bull markets of the past. Tech is another example. Many investors hold a high percentage of technology in their portfolios as their market caps have ballooned due to the fact that they have dominated for so long and become the backbone of the modern economy. Beginning in October, however, they took a breather as money flowed from tech into other sectors which leapt ahead. Technology actually became the weakest sector in the S&P 500 during that period. But over the last few weeks that has started to change. This is former leadership trying to retake their position and a hallmark of bull market rotation. The earnings remain stellar for the mega-cap tech firms but the reactions to the earnings reports have been mixed. In any case, price usually resolves in the direction of the underlying trend, so the sell-off in Microsoft, for example, will likely be short-lived as they start to look cheap relative to other tech companies and the overall market.
Semiconductors are also looking strong again. Just the other day they closed at their highest level both on an absolute basis and relative to the S&P 500. Within the sector of technology, semiconductors are the engine that makes it go. If the trend continues, this should pull up the whole tech space, mega-caps and all, and pull the indices to higher levels. That’s what strong leadership in a bull market does. Tech matters a lot. And stepping back you can see why. It’s the largest weighting in the S&P 500 by a bunch, making up over 35% of the index and accounting for over 50% of the Nasdaq index. So having them step back into a leadership position is not a bad thing for stocks.
Before we go any further, we have to mention commodities. The price of gold has doubled in the last year and silver has nearly quadrupled, up 60% in the last month alone despite being down a whopping 27% today. Copper had its biggest day in years the other day and geopolitically there are talks of annexing Greenland to take control of its precious metals. When commodities go wild rarely is that a good thing for the consumer. Commodities often act as a leading indicator of inflation and bond prices. We have already seen the yield curve steepen meaning that despite what the Fed is doing with interest rates on the shorter-term, long-term notes and things like mortgages are remaining stubbornly high or are even increasing. A typical scenario plays out as follows: gold goes higher, then silver, then other precious metals and copper, and then energy. Then of course inflation. The bond market is pricing in slowing growth and higher prices (inflation). Perhaps this is why we have seen energy stocks catch a bid despite oil and gas prices being at about the same level they were in 2005. Crude is sitting around $65 a barrel. In 2008 it was over $140 and even in early 2022 it was around $120. If we see crude oil (and thus other petroleum products) do what gold, silver, platinum, and even beef and coffee have done then it could be rough on the consumer. The bull market is still on, but commodities are trying to elbow in and cause a shake-up. We will be monitoring closely and trying to position accordingly.