Charting the Markets: The Great Divide

Jeff Buchbinder (00:00):

<Silence> Hello everyone and welcome to LPL Market Signals. Jeff Buchbinder here, your host with my friend and colleague, Adam Turnquist. Adam, how are you today? Thanks for joining.

Adam Turnquist (00:10):

Het, great to be here. Trying to stay warm. I got the jacket, the vest, little cold here on the road in Detroit, but happy to get out in front in some of our advisors this week. How you doing?

Jeff Buchbinder (00:21):

Doing well, thanks. Doing well. I am home, but it is probably not any warmer here in Boston than it is in Detroit. So hope all of you are warm where you are, and you enjoyed the holiday weekend. Happy belated MLK Day. So it is January 20, 2026 as we're recording this, selling off on the sort of Greenland Europe tariff news in addition to some volatility in the Japanese rate market. So we'll talk a little bit about that in a minute. But here's your agenda. Market recap. I think small caps are the big story here of not just last week, but this year. So Adam will do his chart check, as he always does when he joins me on this podcast. The great divide we'll call it. Next, so Adam, you've been busy because not only did you put charts together, but you wrote the Weekly Market Commentary for this week.

Jeff Buchbinder (01:14):

You had a little bit of help, but I think you wrote most of it on "Unearthing the Metals Melt-Up". Very good title there, certainly. And boy, are the precious metals doing well today. Then we'll wrap up with a quick preview of the week ahead. We'll get some earnings. But really it's a light day a week leaving people focused on what comes out of the White House and President Trump's trip to Davos for the World Economic Forum. So here's your market recap table where you can see here, this is the last five days look. So not a calendar week, but the same point holds, the market kind of leveled off, I guess a slight dip, Adam. I think the big story last week was rotation, right? Or a broadening out of stock market performance. So what jumps out at you for the last week's market returns?

Adam Turnquist (02:13):

That's certainly been the theme of 2026, this great divide where everything's rallying except for maybe the mega caps. You can see the Nasdaq lagging on the year by a pretty good margin. Still positive, but it's really been a small cap story, a broadening story. I think small caps, last time I looked, they're undefeated in 2026. They've outperformed to include today, I think for 12 straight sessions over the broader market. That leaves the big question, is this rally going to continue? Are small caps going to lead? We're not quite there yet technically, where you've seen these definitive sustainable trend changes, but certainly on our radar, as we look at the kickoff to 2026 and some really notable outperformance in the small cap space, it doesn't mean that big tech is dead. I think it's maybe down, but not out, and just stuck in this consolidation range right now. Taking a breather from an impressive rally off the April lows where they did a lot of heavy lifting. So, a worthy breather for the big tech trade, trend is still up. So I don't think you want to count that one out yet.

Jeff Buchbinder (03:16):

Yeah, one of the sectors that we have on our shopping list as we highlighted last month in our 2026 Outlook was industrials. So shout out to industrials, the top performing sector year to date, which I think is notable. I also want to point out that you tend to get these rotations early in the year, and they don't always stick, so we'll see if this ends up being another head fake or not, but S&P 500 up a little over 1% year to date, international markets doing better, certainly a continuation of the theme that we saw in 2025. So here, are your bond market commodity and currency returns. I know that precious metals is going to jump out first, Adam, but anything else that you want to highlight here in terms of the rates, market, or commodities or currencies?

Adam Turnquist (04:10):

Keep an eye on crude oil. One we've been watching closely as WTI flirted with support around $55. It has not broke that level really since April. It's been retested several times. That's where buyers have come back in. We're now reversing a short-term downtrend in WTI, but there's more work to do before we start talking about an uptrend. Think best case right now, technically when you look at oil is a consolidation range. Maybe that low end of that range is 55. Nat gas, if you're anywhere in the Midwest, it is really, really cold. So, huge rally in nat gas, they call it the widowmaker market for a reason. Very volatile, as you can see, even with a huge rally today, still, it's still positive 7.1%, but all that came in a matter of days, if not just today. And then we'll talk a little bit more about the metals. Certainly an interesting space last year. I think it's going to be a really interesting space this year in terms of performance. Some of the catalysts that we're looking at in terms of what's driving that. Are they going to continue in 2026, policy really at the center of it, I think in the metals space?

Jeff Buchbinder (05:18):

Yeah, absolutely. Clearly precious metals are reacting to the geopolitical headlines. They're, you know, Greenland is the main one today, but certainly we've been talking a lot about Russia, Ukraine, Iran and certainly elsewhere. So let's get into your chart check first here, Adam, the great divide where we talk a little bit more about the sort of broadening out of this market. So first up, you have the S&P 500. I mean, even though we're having a down day today, not too far from highs.

Adam Turnquist (05:51):

No, and it's really just maybe reentering this consolidation range. This was updated, I believe last night. The market broke out briefly through kind of 6,900, was a little bit overbought. You can see in the middle panel, we highlight how many stocks are overbought based on the relative strength index, when that's above 70, that's the technical threshold for overbought territory. So it was a growing list, not to an extreme, you know, north of 20, you kind of get the red flags out for a shorter term pullback, but certainly moving in that direction. The index itself though, on the bottom panel, RSI there, not overbought. And that's why you're seeing this big rotation helping push the market higher, but not in a material way. It's all those smaller weighting names in the S&P. It's not the big tech that's really pushing the market higher.

Adam Turnquist (06:39):

And that's been this great divide in terms of performance that we talked about. But if we start trading below 6,900 as we are today, there's still a lot of support before we start talking about a retest of the November lows. I'm watching the 50-day moving average, specifically, if we break that, there's the December lows around 6,720 on the S&P 500, the 100-day. So there's still a lot of support before we start talking about a retest of the low end of the range. But for now, maybe just more of a consolidation phase as we work through some of these levels of higher uncertainty, especially in the political realm.

Jeff Buchbinder (07:15):

Yeah, we'll see where we close today, but certainly we're threatening that 50-day. So next up, average stocks of the, by the way, the average stock did beat the S&P 500 last week. Equal weight did outperform. That's something we've seen really for a little bit of, a little bit of time here.

Adam Turnquist (07:37):

It's been an impressive rally here, and this is one that was more stuck sideways as big tech was doing most of the heavy lifting. And now you're seeing the average or equal weight S&P 500 here breakout to new highs with, and it really hasn't slowed down in terms of the momentum. Now, there's a lot of excitement about this rotation and this broadening theme, even in the small cap space, similar story, but we have to be cognizant of the long-term trend, and that is the market cap weighted has consistently outperformed the equal weight index for years. And you can see that in the middle panel, those brief periods of outperformance and equal weight, they tend to die right around the 200-day moving average in that downtrend. So that's a big level to watch as we get closer and closer, I don't think you can get too excited about this being in a durable rotation and broadening theme until you start reversing that longer term downtrend. We're not there yet, and we are coming off very oversold levels. When you look at the ratio chart, that rate of change got down to negative 10%. That is typically where you see these inflection points, but not enough to really create a sustainable downtrend reversal. So, more evidence of this market cap weighted leadership, really continuing until we get that reversal.

Jeff Buchbinder (08:56):

Yeah, certainly a lot of people watching the Mag Seven, which is tied to this theme as that mega cap anchor. So next up the NASDAQ 100, speaking of mega cap tech, there's quite a bit in there.

Adam Turnquist (09:09):

I was going to say, yeah a good proxy for the mega cap trade, and this is really just highlighting the fact that this is just a consolidation phase. There's a lot of, we'll call it bearish sentiment, maybe on the mega cap space. They've struggled to keep up as the market rallied to new highs. The Nasdaq 100 here, home of the largest non-financial stocks on the Nasdaq, and this is what we call a symmetrical triangle. And it's really just a coiling up of price action. You tend to get a breakout right around the fulcrum point. And that's where we are right now. Now, technicals will tell you when you consolidate in a longer term uptrend, you tend to break out to the upside. So I think that's the direction you want to look for on the Nasdaq 100. We'll note today's price action a little bit more questionable.

Adam Turnquist (09:55):

Mm-Hmm <affirmative>. Of course, on a leadership standpoint, when you look at the S&P versus, or the Nasdaq 100 versus the S&P, we're simply just pulling back to a key support level from a prior breakout level, right to the rising 200-day moving average. I would not be surprised to see a bounce here in Nasdaq 100 relative performance, and I think it's going to be imminent, whether it's days or maybe over the coming week or weeks. Look for a potential breakout here on the Nasdaq 100. I think that would help the S&P 500 at least kind of break through 6,900 on a more sustainable basis.

Jeff Buchbinder (10:29):

Yeah, it seems like we're on the verge of several trend reversals, you know, from listening to you, Adam. We have maybe more work to do, but there's certainly a possibility that the leadership this year looks a little bit different than how it looked last year. So you talked a little bit about tech here but now digging even further into the sector with a look at some industries.

Adam Turnquist (10:52):

So when we think about tech, it's usually a trade between semiconductors and software, and that's what we're showing here actually, software versus semiconductors. The SOX index, no surprise, it's been semiconductor leadership for the last several years, if not, I guess decade plus, when you look at this longer term chart, and that's symbolic by this ratio chart moving lower, that's the semi leadership. When you look at these cycles of leadership and the drawdowns against software, we're at levels that you've seen prior inflection points, and we're highlighting those in red, kind of 40 to 50 basis points of underperformance. And we're also at a critical support level that goes all the way back to the 2000 lows. So oversold into support, you tend to get a bounce. And we kind of quantify that a little bit more when we look at the ratio chart and how much of a discount is trading to the 40-week moving average.

Adam Turnquist (11:48):

That's in the bottom panel. It hasn't traded at a discount this much since basically the 2000s. So, a potential spot here where maybe you get a little bit of a software bounce, I think that would actually help the tech sector. It's been a laggard within that space. It's under loved under owned and really oversold right now as a sub-industry group. I would not be surprised, maybe in Q1 we get a little bit of a bounce here as some of the fear over AI disrupting the whole software space is overblown. Do you listen to a Salesforce or any of the software names and enterprise, they certainly don't see it as a risk, of course, <laugh>, they're talking their own book a little bit, but maybe a little bit of overblown here on the underperformance for software. So something to watch, especially in Q1.

Jeff Buchbinder (12:33):

Yeah, whatever AI impact there is on software may be priced in here. So yeah, this is certainly an area to watch for a potential reversal. And this is where earnings season will be helpful. We'll hear kind the latest from the software companies coming up over the next few weeks. So, we often hear the phrase, it's a stock pickers market, Adam, and that to me means, you know, there's more breadth and you've just got a better chance of throwing a dart and hitting a winner.

Adam Turnquist (13:03):

Yeah, I think the stock pickers market is every day, right? But here we're trying to quantify it a little bit mm-hmm <affirmative>. And we're looking at dispersion within the S&P 500. So you think about as dispersion moves higher, that creates a better opportunity set for investors and correlations are really, really low right now within the S&P 500 that's in orange. We're talking almost the lowest level since 2024. Now, I would argue maybe a little bit too low. You tend to get some mean reversion when correlations are this low. That was the case as we went into to 2025 and pre-liberation day sell-off correlations were low. But I think when you look at the backdrop, it's a midterm year or midterm election year, you have a choppy market. You look at expectations for volatility, maybe moving higher here, especially in the geopolitical backdrop that we're in. And then just the overall composition of leadership. The Mag Seven is no longer as correlated as it used to be. It is just a, I think a bigger opportunity set for investors. So I think this is a quantified stock pickers market here when you look at some of the data behind it.

Jeff Buchbinder (14:11):

Yep. You want stocks moving in different directions. It helps increase the chances of outperformance. And we know it's been tough for active managers over recent years that tide maybe turning. So next up, emerging markets, this is a chart that's starting to look more interesting.

Adam Turnquist (14:28):

Certainly, it looks more interesting. We're taking a longer-term view because I think you have to highlight just the sustainable under performance here for EM. And we're comparing EM versus the S&P 500. It's been down and to the right basic basically since 2010. Picking a bottom here has been a tough game, and we've put some numbers around it just to help us, give us a little edge here. Maybe we're at an inflection point in emerging markets leadership, of course, it certainly outperformed last year. It's off to a really good start this year. But we look at breadth in the middle panel and we're comparing S&P 500 breadth to emerging markets breadth. And you can see we're in positive territory. That means EM has better breadth than the S&P and we're just measuring how many stocks are above their 200-day moving average.

Adam Turnquist (15:13):

We haven't seen breadth like that or breadth out performance really since the, call it early 2000s slash you know, 07, 08 timeframe. And then we're also throwing momentum in there, modified percent price oscillator, just looking at two exponential moving averages, that's actually turned positive. And when you combine momentum and breadth, it does have some similarities to the 2000, 2001 timeframe where EM really started to outperform the S&P 500. Now, I would caveat this with the dollar also breaking down, that's one of the other missing pieces of evidence at that time, the dollar was breaking down. We're not at that level at this stage, but maybe EM equities are assuming the dollar's going to move lower. Certainly there's some upside risk maybe limited with what's going on geopolitically. There's some dollar selling pressure even today on the headline news with whether it's Greenland or added tariffs. It certainly hasn't benefited the dollar over the last year, a really weak dollar in the first half. And we're just kind of consolidating. But I think this is really going to be an interesting chart to watch here in 2026 if this EM trade can continue.

Jeff Buchbinder (16:26):

Yeah, that sell America trade may at least be coming back today. We'll see if that continues. But the Greenland and the tariff story certainly is dollar negative if that stays in the headlines and you know, continues to unnerve investors and markets. So turn to the bond market, the 10-year yield. This, I don't think you can overstate how important the 10-year yield is, not just for the bond market, but also for the stock market. So how's the chart looking on the 10-year?

Adam Turnquist (16:59):

So, we've actually broken out since I updated this chart. It's arguably a head and shoulders bottom. I won't get too far into the technicals there, but what you need to know is we're breaking out of a multi-month bottom. We've gapped above the 200-day moving average. I think we were, last time, I looked around 4.28 in the afternoon here on Tuesday. That brings upside risk to maybe 4.50 to 4.60 on the 10-year. And it's really how you get there. The rate of change in terms of the spillover effect with higher rates weighing on equity markets. And I threw the Bollinger Bandwidth in there because that tells us we've had compressed volatility, is just a measure of two standard deviations around a moving average. And when that narrows, that's indicative of really narrowing volatility. And we know about volatility tends to mean revert. So when you start to break out, you can have this volatility expansion. And I think that's really what we're seeing today. That was at multi-year lows that Bollinger Bandwidth. So to me that suggests there is some risk for the rate of change to the 4.50, 4.60 level being elevated. And historically we know when rates move too high too fast, it tends to be a problem for equity markets. And I think we're certainly seeing that today.

Jeff Buchbinder (18:15):

Yeah, with 4.50 to 4.60 seems to be kind of the high end of the range where the stock market's comfortable. But that's a really important point you raise, Adam. It depends how fast you get there as to how well the equity market digests that move.

Adam Turnquist (18:32):

Yeah, and good call out on the upper end of that range. I zoomed out on that chart just to show, look, we've just been range bound since October 2022, on Treasuries. You have some bouts of volatility to the upside, but directionally we're sideways and that's worked pretty well for equity markets. Shorter term though, when you look at breakouts above 4.20 and we pick 4.20 because that was the October 22 highs here in the top panel in white, and then we're overlapping that with the S&P 500. It's not perfect science, but we'll call it three of the last four times we broke through 4.20 with a high rate of change. You can see the equity market reaction. We had notable selloffs in the fall of 2023, the call it the spring of 2024, also late 2024, early 2025, the most recent example, the rate of change wasn't as severe and we didn't have the, we're coming out of the Liberation Day low. So maybe that was a little bit different, but certainly it's been a problematic spot for equity markets as we go north of that level.

Jeff Buchbinder (19:39):

Yeah, this is why the tariff revenue is important. The tariff revenue can offset the extra deficit spending from the One Big Beautiful Bill Act and keep, we think, keep Treasury yields in this range where they've been. So certainly our forecast for year end 2026 is for 10-year yields to be south of 4.50, probably south of 4.25. But that is absolutely a key risk. You know, AI working is probably risk number one, 10-yields holding in this sort of 4.25 or below range would be risk number two. So let's go to your weekly now, Adam, it is really great piece. I mean, so many people are asking about gold. I think gosh, it's probably the number one question I've been getting lately other than the maybe the deficit or some of these geopolitical conversations that we've been having about Middle East, Venezuela, Greenland, et cetera. So "Unearthing the Metals Melt-Up", can the precious metals rally continue? Boy if you are going to say that the silver rally can continue, I'm going to say you are bold. What do you say? <Laugh> <laugh>,

Adam Turnquist (20:52):

That would be a very bold statement. I think it will. But going back to your intro here, you're getting a lot of questions on gold and precious metals. Can this rally continue? That was the same January 2025, right? Because we had gold outperform equities last year and the year before in a market that is completely AI driven, right? Where they have all this enthusiasm about new technology and here you have the most boring rock with no technology actually outperforming in this bull market. I think it's surprised a lot of people, it's not just a weaker dollar story or the Fed resuming their interest rate cuts. There's a lot to this gold story to unpack. But here's just looking at performance, gold notably outperformed the S&P. S&P is in yellow, but it was really silver the poor man's gold, not as poor anymore.

Adam Turnquist (21:44):

With, you know, multi-decade highs. I think it broke out above the 1979 highs. I don't it was, that was a cornering of the silver market back in the late 70s that did not end well for silver. A little different dynamic now when you look at what's driving silver prices, but certainly very, very strong momentum. These are especially silver, much more parabolic recently, which gives me a little bit of nervousness in terms of putting new money to work right now today. I think there's probably some risk for a little bit of profit taking pressure and a pullback. But longer term, I think there's enough catalysts and the technicals would tell you the precious metal space still a buy the dip market.

Jeff Buchbinder (22:28):

Yeah, I mean you look at the chart, clearly silver is overextended, Adam, I'm sure you'll agree with that. So I'll just say be a little bit careful with that one. But you know, that doesn't change the fact that we think that precious metals can be a part, a small part maybe, a part of an overall asset allocation. So let's go to your next precious metals chart, relative strength and gold at an inflection point. There it is, again, so many inflection points in so many charts right now,

Adam Turnquist (23:01):

Right? It's pretty alarming. I mean, in how this all plays out. And it's also January and you, that's the month where you get a lot of false starts. Here we're looking at just a long-term view of gold versus the S&P Total Return Index. So a ratio chart, when it's moving higher gold's outperforming stocks. And this goes back to the original question, how much higher can this rally go? I think we're going to get an answer maybe this month with gold versus stocks really at this important resistance level. If we start to break out here, that would to me technically say this is a secular trend of gold outperforming that would be a breakout from a multi-year bottom and suggest further gold out performance ahead. We had a similar breakout in the 2000, 2001 timeframe where gold went on a notable rally against stocks as it moved higher and outperformed. Now you have to wait for the confirmation to make that call. But, you know, longer term certainly looks constructive, but I would argue, same on the S&P 500. And the equity market certainly looks pretty constructive, even though there's been a little bit of volatility here.

Jeff Buchbinder (24:07):

Yeah. What's the expression? The bigger the base, the higher in space or something like that?

Adam Turnquist (24:14):

Exactly, yes. <Laugh>. Yeah. So Ralph Acampora.

Jeff Buchbinder (24:16):

Ralph Acampora, so you know, silver, you were, you know, basing for decades, the Nikkei you were basing for decades, right? It just took a long time. This is not quite decades, but I can see it's a real important point to break above the highs over the last, call it 10 years. So that'll be important to watch, so many interesting charts. All right, so central banks, Adam, have been a really important part of this whole story.

Adam Turnquist (24:45):

Certainly. And that really kicked off in 2022 when Russia invaded Ukraine. They seized, I think just over $300 billion in Russian dollar assets. And that was a warning shot to other central banks that maybe were not aligned with the West or the U.S. Look at any point in time there's seizure risk of your dollar reserves. And that's when you started to see material buying by central banks in gold to the tune of double the gold buying that they've done pre-2022, over the last three, four years now. And with gold prices moving higher, when you look at foreign reserve holdings by asset and you mark to market gold, it's at 37%. And look at the rate of change there. Of course, it tracks gold as the price moves higher, but it's now more widely held in reserves than Treasuries, which I was surprised by.

Adam Turnquist (25:36):

And also the euro. So when you think about reserve assets, the dollar number one, 57% there, we still think the dollar in terms of its reserve status is not in question that there's no alternative to the dollar. But it's funny that now gold is probably the biggest threat to the dollar in a dethroning the dollar reserve assets, still a long ways away, but it's not these other currencies, whether that's the Chinese yuan or the euro, which has been, is the euro going to overtake the dollar? None of those have really played out. You can see surprisingly over the last, almost since the inception of the euro, it's been pretty stagnant in terms of reserve holdings around 20%. It's really been a remarkable breakout here in terms of reserves for gold. And one other thing to relate back to the metals, when you think about the price of gold right now in 2026, maybe you'll see some diversification away from just buying gold, where you start to see silver purchases by central banks or even maybe copper, where there's a little bit more industrial use. I would not be surprised to see that theme. Maybe that actually takes some of the momentum out of gold and further fuels these rallies in silver or some of the other industrial metals.

Jeff Buchbinder (26:50):

Yeah, I think I've seen, I think I've seen platinum maybe on a central bank buying list. Not sure, but yeah, there's a lot of metals buying <laugh> clearly going on. Yeah. More so than what we've seen in recent decades. Really great stuff. So again, the Weekly Market Commentary "Unearthing the Metals Melt-Up" is available on lpl.com on the Research tab. So check it out if you're interested in reading more, it's great job, Adam, on that. So we had you know, the economic data is catch up, right because of the shutdown, so we're a little delayed in some of this data, which really makes it less meaningful. So, you know, I think, you know, President Trump speaking in Davos this week and the potential Supreme Court ruling on the tariffs and earnings season is really, I mean, those are the things I'll be watching most closely. Anything to add to that list, Adam, or any of these data points that you think will be interesting that are highlighted on this page?

Adam Turnquist (27:54):

No, nothing to add. I think if and when we get that tariff decision from the Supreme Court it is really going to be interesting, and especially right now with these new tariffs being threatened, whether they're real or not, it's certainly going to weigh on how that decision comes out in terms of the material impact, if they're, even, if they can even be implemented in a way that the administration is hoping for potentially <laugh>.

Jeff Buchbinder (28:18):

Sure. Yeah. I mean it's in Davos right now, it's all about Greenland and frankly, we, that that should be resolved without an invasion <laugh> right? Or a seizure or anything like that. Let's hope. So we wouldn't necessarily sell stocks because of that, but however, I will point out that our forecast for S&P 500 fair value at the end of 2026 is a little below consensus. And why is that? Well, I think it's because we've put in a little bit of a policy uncertainty cushion, right? And I would've said that before the, I guess, unexpected Greenland news. I don't think too many people were expecting the Trump administration to put tariffs on European countries just because of Greenland or because they don't want to maybe participate in this group of peace or whatever it's being called. That is a surprise.

Jeff Buchbinder (29:18):

And I think some of the policy announcements over the past couple weeks have been a little bit of a surprise too, not allowing institutions to buy single-family homes, for example. We'll continue to get these announcements ahead of the midterms. So we think it makes sense to be a little more careful maybe than some of these other shops are being with price targets north of 7,500 on the S&P 500. We'll see, we hope we're wrong. We hope we're too conservative. But I think that policy uncertainty is something that we really want to respect. And then if we do get a pullback on some of this that we think will create an attractive opportunity to potentially add equities at some point this year. So the only other thing I'll add you know, there are some big names reporting earnings this week.

Jeff Buchbinder (30:05):

I mentioned earnings season is important to watch. Well we've got Netflix this week, big name, a lot of people watch Halliburton. Everybody's talking about Venezuela and the energy companies there. J&J, huge name in the healthcare space. Healthcare has been performing better the last few months. And a sector that's also on our shopping list. Hey, Freeport, on the materials side, <laugh> big, well you just mentioned copper, Adam, so I think Freeport will be interesting to watch GE, Proctor and Gamble, Intel. There are a lot of big names this week, it's not the biggest week because it's not a Mag Seven week, but it is a big week nonetheless. And then next week I think is when things get really interesting. So keep an eye on earnings season. We previewed earnings season in our last Weekly Market Commentary saying that it looks like this double digit earnings streak is going to continue. So that is all I have. Thanks so much Adam for walking through all those charts and talking precious metals, which a lot of people are interested in. Looks still looks like a pretty good place to be.

Adam Turnquist (31:10):

Yeah, thanks for having me on.

Jeff Buchbinder (31:12):

Sure thing. Yeah, thanks for doing it while you were traveling. And to all of you, thank you for listening or watching LPL Market Signals. Appreciate your partnership and your support. We'll talk to you next time. Take care everybody.