Wall Street kicked off the first full trading week of 2026 on solid footing, with both the S&P 500 and the Dow Jones Industrial Average pushing further into record territory as investors balanced resilient economic data against steady expectations that interest-rate cuts could arrive later this year.
Market leadership continued to rotate away from mega-cap technology toward more cyclical industries. U.S. equities tied to oil and defense rallied after a U.S. military operation in Venezuela led to the capture of President Nicolás Maduro.
Venezuela Developments Reshape Energy Outlook
President Donald Trump announced that interim authorities in Caracas had agreed to supply between 30 million and 50 million barrels of sanctioned crude to the United States.
Market participants are also watching whether the U.S. administration may impose export controls to restrict Venezuelan oil flows to geopolitical rivals, a move that could reshape global energy trade.
Jobs Report Sends Mixed but Reassuring Signals
The week's most closely watched economic release was December's jobs report. Nonfarm payrolls rose by 50,000, slightly undershooting expectations for a 60,000 gain. Yet, the unemployment rate unexpectedly fell from 4.5% to 4.4%, easing fears of an acceleration in jobless conditions.
The mixed report strengthened the view that the Federal Reserve will hold rates steady at its January meeting, while leaving the door open to cuts later in 2026 if labor market softness persists.
Consumer sentiment showed tentative improvement at the start of the year. The University of Michigan's preliminary January index climbed to 54.0, the highest level since September, suggesting households are growing slightly less pessimistic even as inflation remains a concern.
Trade data delivered another surprise. The U.S. goods and services trade deficit narrowed sharply in October to $29.35 billion, the smallest gap since mid-2009, as tariffs continued to curb imports.
The improvement prompted the Atlanta Fed to lift its estimate for fourth-quarter GDP growth to 5.4% annualized, a pace rarely seen in the last decade, excluding the post-pandemic recovery.
Defense Stocks Lead Weekly Gains
Defense stocks were among the week's standout performers after Trump outlined plans to increase the military budget to $1.5 trillion in 2027.
Smaller contractors such as Kratos Defense & Security Solutions Inc. (NASDAQ:KTOS), AeroVironment Inc. (NASDAQ:AVAV) and Karman Holdings Inc. (NYSE:KRMN) rocketed, while major players such as Lockheed Martin Corp. (NYSE:LMT) were among the best weekly performers in the S&P 500.
The SPDR S&P Aerospace & Defense ETF (NYSE:XAR) rallied 10.5% for the week, notching its best weekly gain since April 2025.
Among mega-cap stocks, Alphabet Inc. (NASDAQ:GOOGL) overtook Apple Inc. (NASDAQ:AAPL) as the world's second-largest company by market value, as investors continued to bet on Google's leadership in artificial intelligence.
Image created using artificial intelligence via Midjourney.
