Outlook Despite a volatile week in the market, major indexes (including the Dow Jones Industrials, S&P 500, and NASDAQ) are all within 5% of all-time highs.1 While index levels remain high, and many investor accounts are likely robust as a result, the pickup in volatility may be a message worth watching. Our interpretation is that investors seem to be sending a three-part message to companies: 1) "if you've invested heavily in the new artificial intelligence landscape, we now need to see solid returns on those investments", 2) "if you’re a business that may be disrupted by artificial intelligence, how will you survive?", and 3) "if you're a traditional company who can use artificial intelligence to improve your bottom line, we love you.”2,3,4
We view the rest of 2026 as a testing ground for whether companies will be affected and, if so, how they will navigate this evolving technological landscape. Fortunately, this is happening in a period of economic growth. As a result, we suspect 2026 will continue to be a decent year for the stock market overall. However, we expect periods of excitement and volatility as answers to these questions become clearer. . . . U.S. equity markets experienced a week of volatility but ended on a resilient note, as investors navigated sector-level volatility, mixed economic data, and a strong late-week rebound. The Dow Jones Industrial Average advanced, closing above 50,000 for the first time, supported by rotation into cyclical sectors. In contrast, the S&P 500 and Nasdaq posted modest weekly declines amid ongoing pressure in the technology sector. The early part of the week was dominated by rising concerns over escalating artificial‑intelligence capital expenditures after major technology companies issued guidance calling for substantially higher spending in 2026. These developments heightened uncertainty around profitability and contributed to notable declines across software and mega-cap companies before market sentiment improved meaningfully later in the week. A broad-based rally occurred on Friday, helping recover much of the week’s earlier losses. Beyond technology-driven volatility, market leadership broadened into cyclical and value-oriented areas. Investors increased exposure to industrials, financials, energy, and consumer staples, signaling a shift toward more diversified positioning after a considerable stretch of concentrated mega-cap dominance. Small-cap equities also outperformed, reflecting improving risk appetite outside the largest U.S. companies and providing further evidence of healthier market breadth. Investor sentiment improved further following an unexpected rise in consumer confidence. The University of Michigan consumer sentiment index rose to 57.3, its highest level in six months, which helped support buying momentum into the weekend.5 Recent PMI (Purchasing Managers’ Indices) data also provided clarity on underlying economic momentum. The services sector continued to expand steadily, with the ISM Services PMI holding at 53.8%, marking its nineteenth consecutive month of growth and indicating stable business activity despite persistent cost pressures and slower supplier deliveries.6 The manufacturing sector showed a notable rebound, as the ISM Manufacturing PMI rose to 52.6%, its first expansion in a year, supported by stronger new orders and production even as some components remained in mild contraction.7 Together, these readings point to continued forward momentum across both goods-producing and service-driven areas of the economy. Overall, the week reflected a market balancing concerns over the sustainability of large-scale AI investment with improving consumer confidence and ongoing strength in both services and manufacturing. Expanding PMI readings and stable demand indicators suggest the broader economy continues to grow at a moderate pace, even as sector-level volatility and evolving corporate spending plans contribute to short-term market fluctuations. [1] https://www.investopedia.com/ [2] https://www.columbiathreadneedle.com/ [3] https://www.thestreet.com/ [4] https://www.investing.com/ [5] Surveys of Consumers [6] January 2026 ISM Services PMI Report [7] January 2026 ISM Manufacturing PMI Report | 
