Good morning investors,
The market's message could not be clearer: this bull market is not finished. Monday saw the Dow Jones Industrial Average close at yet another record above 50,000, the S&P 500 rally 0.5% to within striking distance of its own all time high, and the Nasdaq Composite surge 0.9% as buyers stepped back into technology names that had been left for dead just days ago. After all the hand wringing last week about AI disruption ending the software industry as we know it, the benchmark index for American investors has never traded at higher levels.
Let me put last week's drama in perspective. At Thursday's lows, the S&P 500 was down 2.6% from record highs. That is not a crisis. Since the financial crisis, serious drawdowns exceeding 5-10% have tended to accompany genuine growth scares, when fears of systemic issues or recession surface. Think of the decline we saw in April around the liberation day tariff announcement. While I take concerns about AI disruption and software valuations seriously, it is premature to assume we face that kind of risk today. The fear needs to be more severe than a vibe that vibe coding will upend the entire software business for a meaningful correction to stick.
Opening Bell
Futures are essentially flat this morning, with Dow ($DIA ( ▲ 0.12% )) futures up 34 points, S&P 500 ($SPY ( ▲ 0.07% )) futures marginally higher, and Nasdaq 100 ($QQQ ( ▲ 0.21% )) futures dipping fractionally. The calm tone reflects a market that has found its footing after successfully defending key technical levels. The S&P 500 has recovered support above both its 50-day and 100-day moving averages after dipping below them last week, a constructive signal that the correction was shallow rather than structural.
Today brings the January retail sales report, expected to show a 0.5% monthly gain. This is the first of several important data points this week, with the delayed jobs report on Wednesday and CPI on Friday. On the earnings front, we get reads across consumer, healthcare, fintech, and energy with Coca-Cola ($KO ( ▼ 0.41% )), CVS Health ($CVS ( ▲ 0.71% )), Spotify ($SPOT ( ▲ 2.82% )), Robinhood ($HOOD ( ▲ 6.82% )) , Ferrari ($FERI ( 0.0% )), Ford ($F ( ▲ 1.95% )), and Datadog ($DDOG ( ▼ 0.74% )) among the notable names reporting.
Market Framework: Rotation Continues Working
Monday reinforced exactly the themes I have been emphasizing since coming into 2026. Small caps and international equities both posted strong advances, continuing to outperform the mega cap dominated indices. The equal-weight S&P 500 remains near record highs while the Magnificent Seven lag. This is the market I expected, and I continue to believe small caps and international will outperform throughout the year.
The broader message is that many asset classes are outperforming the S&P 500 itself, which is bullish as far as market breadth is concerned. When participation is this broad and technical damage is this limited, the historical playbook suggests we are in a rotation rather than a topping process. As iCapital's chief investment strategist noted yesterday, this will not be a clean trade and choppy conditions will persist, but there will be winners through this.
I continue to believe the other 493 stocks in the S&P 500 will be massive beneficiaries of Big Tech's spending. The $650 billion in hyperscaler capital expenditure flows through the economy in ways that support earnings for companies far beyond the technology sector. That multiplier effect is why breadth is broadening even as the largest names digest their gains.
Software Sector: Finding a Floor
I do not believe software is dead despite the selling. With Monday marking the second consecutive day of recovery, there is potential we are at least seeing a short term bottom forming. The indiscriminate nature of last week's sell off created some genuinely attractive risk-reward setups for investors willing to differentiate between companies with defensible moats and those truly vulnerable to disruption.
I have been looking at Salesforce, which has sold off significantly on fears of AI disruption. Yes, there is potential for disruption to their business model. But as someone in financial services who uses their CRM daily, I understand viscerally how painful it would be to off-board from their platform. The switching costs, data integration complexity, and workflow dependencies create stickiness that AI cannot simply dissolve overnight. At 15 times earnings, the risk-reward is tempting.
I also find certain cybersecurity names attractive here. Palo Alto Networks and CrowdStrike remain best-in-class operators in a space where demand is structural and growing. Security spending does not get cut when budgets tighten because the consequences of underinvesting are existential. These are the kinds of software businesses where AI is more likely to enhance margins than destroy them.
One last name that remains a favorite is Uber. Very much a future beneficiary of the autonomous driving, which could be a huge industry. Adding this stock under $75 seemed like a no brainer.
Crypto Framework: Searching for a Base
Bitcoin remains in a more precarious position than equities. After falling near $60,000 on Thursday in the steepest one day drop since the FTX collapse in November 2022, the cryptocurrency slipped back below $70,000 on Monday before recovering. The wobble signals that last week's volatility has not fully resolved.
Bitcoin appears to be trying to find a base for an attempted leg higher, with $73,000 remaining the critical level to reclaim. Just remember that historically, major bearish moments in the crypto trade have been major opportunities. History does not often repeat itself, but it often rhymes. We will see if that proves true again.
The intense selling has prompted larger questions about crypto's future. Despite counting allies in the White House and a user base with more access than ever to purchase crypto assets, prices have been sliding since October's peak. More concerning to observers is crypto's diminished standing as a store of value and as an asset class unique from high risk tech stocks. Rather than function as a safe haven amid global uncertainty, crypto has fallen while traditional defensive plays like gold have proven their worth and then some.
Corporate Developments
CVS Health reported fourth quarter results that beat estimates and reaffirmed 2026 profit guidance, signaling steady progress in the healthcare giant's turnaround. The company expects full year profit between $7.00 and $7.20 per share on revenue of at least $400 billion. CFO Brian Newman noted that 2025 was about righting the ship after a tough 2024, with the recovering Aetna insurance business and Caremark pharmacy benefit manager driving growth this year. The Rite Aid acquisition is providing prescription volume tailwinds while Oak Street Health is improving profitability after closing underperforming locations. CEO David Joyner's restructuring has helped fuel a 40% stock rise over the past year.
Coca-Cola reported mixed results with adjusted earnings of 58 cents beating the 56 cent estimate, though revenue of $11.82 billion missed the $12.03 billion expected. More encouraging was unit case volume rising 1% for the second consecutive quarter, with North America and Latin America both showing improvement. The company projects organic revenue growth of 4-5% and comparable EPS growth of 7-8% for 2026. Shares fell 4% in premarket trading on the revenue miss.
Spotify forecast first quarter operating income of 660 million euros, above estimates, as the Swedish audio streamer benefits from strong user growth and price increases. Monthly active users are expected to reach 759 million, above consensus.
Hims & Hers crashed as much as 27% Monday after the FDA announced plans to crack down on compounded GLP-1 drugs. Novo Nordisk then filed a lawsuit seeking to ban Hims from selling compounded versions of its weight loss drugs. The stock is now down close to 50% this year, highlighting the regulatory and competitive risks facing companies trying to offer cheaper knockoffs of blockbuster pharmaceuticals.
Alphabet issued $20 billion in bonds stretching to 2066 to fund AI infrastructure spending, underscoring Big Tech's growing appetite for credit as cash flows alone cannot keep pace with investment demands. Cisco launched a new AI networking chip to compete with Broadcom and Nvidia for the $600 billion infrastructure spending boom.
Economic Calendar
Today's retail sales report is expected to show a 0.4% monthly advance, with ex-auto sales also up 0.4%. The NFIB small business optimism survey is expected at 99.5. Wednesday brings the delayed January employment report, which will be closely watched given last week's weak ADP print and concerning JOLTS data. Friday's CPI is the marquee event, expected at 2.5% year over year.
Final Thought
The market has spoken: last week's sell off was a buying opportunity, not the beginning of something worse. Technical damage was contained, breadth remains broad, and record highs are being printed in value-oriented indices even as growth digests its excesses. There will be numerous tactical opportunities to add technology exposure throughout this year, but patient investors should continue favoring the themes that are working: small caps, international equities, equal-weight exposure, and AI infrastructure beneficiaries beyond the hyperscalers themselves.
As always, feel free to reach out with questions about positioning for these evolving market dynamics.
Best regards,
Dan Sheehan
This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.