The weekender: When the calendar turns but the tape does not cooperate

The tape does not cooperate

The new year opened in a distinctly untidy fashion. Price action lurched rather than flowed, conviction was thin, and the market struggled to decide whether it was resuming a bull trend or simply shaking out stale positioning left over from December. Headline indices drifted higher by the close, but the session felt disjointed from the opening bell, with rising Treasury yields casting a long shadow over risk and forcing equities to trade with one eye permanently fixed on rates.

Beneath the surface, the early optimism evaporated quickly. Overnight strength in big tech failed to survive contact with US cash trading, leaving the market to grind forward without its usual leadership. What followed was not a clean risk-on or risk-off move but a messy rotation, marked by abrupt reversals, factor churn, and a widening gap between index level stability and the turbulence playing out underneath.

By mid-session, the tape began to resemble a poorly executed relay. The baton was dropped, picked up, and dropped again. Leadership changed hands not because anyone wanted it, but because nobody could hold it. Mega-cap tech surged, stalled, and reversed, while capital spilled sideways into small caps and value, less out of conviction than out of necessity. This was not momentum chasing momentum. It was positioning, trying to survive the turn.

On the surface, US equities managed to inch higher, but the tape told a more complicated story. The S&P 500 clawed out a modest gain after swinging between green and red for much of the session, while the Nasdaq slipped as technology names gave ground. Tesla delivery misses offered a convenient headline, but they were more spark than substance. Amazon and Microsoft slid, the Magnificent Seven were knocked lower, and what should have been a leadership-driven advance instead became a breadth story.

That distinction mattered. The generals were retreating, but the foot soldiers kept marching. The S&P 493 quietly outperformed, breadth was decisively positive, and small caps surged as capital rotated away from crowded winners and into underowned corners of the market. The index itself barely held together, but underneath it, the market was anything but weak. This was rotation with friction, not liquidation.

The more profound metaphor was one of traffic rather than trend. After a year of a one-way express lane dominated by mega-cap tech, the market was suddenly experiencing lane closures, detours, and stop-and-go congestion. Flows did not reverse; they slowed, spilled, and were rerouted. Consumer discretionary, communication services, and technology were crowded out by valuation and rates, while energy, materials, industrials, and even utilities quietly absorbed the overflow.

This is what late-cycle leadership transition looks like before it is obvious. Not a crash, not a clean break, but a series of small inefficiencies that add up to something larger. The market is still moving forward, but no longer in a straight line, and no longer led by the same vehicles at the front of the pack.

Ten fault lines for 2026 as the cycle shifts under our feet

As the calendar flips, Goldman’s sector desks are not framing 2026 as a simple continuation trade. The common thread running through their work is transition. Leadership is changing, profit pools are migrating, and the old certainties of who captures value are being quietly questioned. This is not about chasing what worked last year. It is about identifying where the stress fractures are forming as capital, policy, and technology collide.

The AI trade is the most obvious example. The first phase was about owning the obvious names and riding the capex surge. That phase is now maturing. The dependable leaders have stalled, not because AI is fading, but because the market has moved inside the data center. The marginal dollar is shifting toward memory, connectors, power systems, turbines, and the installers who physically make the build out possible. The AI story is becoming less about chips and more about electricity, scarcity, and execution. That is a meaningful change in market plumbing.

Healthcare is undergoing a similar handoff. The obesity trade has entered its digestion phase. Market leadership is narrowing, pricing power is being tested, and expectations are being reset. From here, the opportunity broadens. The pipeline matters again. New obesity candidates, cardiology therapies, and approval cycles start to matter more than brand dominance. This is the beginning of a multi year product cycle rather than a single theme momentum trade.

In consumer and retail, the old silos are dissolving. The lines between in store sales, online commerce, logistics, and advertising are blurring into one integrated profit engine. The most interesting players are not just selling goods, but monetizing attention, speed, data, and membership. Commerce is becoming a media business by another name, and the market is only starting to price that optionality.

China sits uncomfortably at the center of 2026 narratives. Goldman’s economists see growth surprising to the upside, driven by technology and exports even in a tariff constrained world. That matters. A China that grows through productivity and scale rather than credit excess changes global trade flows, commodity demand, and competitive dynamics across tech and manufacturing. Whether markets like it or not, China’s reacceleration is a variable that cannot be ignored.

Productivity is the quiet macro force tying many of these themes together. AI-driven efficiency gains are lifting margins even as labour markets soften. The risk is a jobless expansion, but the necessity is clear. Aging populations, declining fertility, and tighter immigration mean productivity has to do the heavy lifting. Markets will increasingly reward companies that can grow earnings without growing headcount.

Capital markets themselves are evolving. Private credit has overtaken private equity as the vehicle of choice, drawing in institutional and retail money alike. At the same time, crypto infrastructure, stablecoins, prediction markets, and hybrid trading platforms are expanding the definition of brokerage and exchange. This is not fringe behavior anymore. It is financial plumbing being rebuilt in real time.

Defence and militarization are no longer episodic trades. They are structural. The US is leaning into space, drones, and satellite infrastructure. Europe is rearming at scale, facing a multi-year investment gap that runs into the hundreds of billions. Defense is shifting from legacy primes toward technology native platforms, and the market is starting to reward that distinction.

Further out on the curve, automation is moving from concept to capital allocation. Humanoids and autonomous driving are no longer science projects. They are being modeled as profit centers. China’s supply chain depth gives it an edge in robotics, while autos and industrial tech firms begin to look less like manufacturers and more like platforms.

Energy is circling back to an old solution through a new lens. Nuclear power, once sidelined by history, is being reexamined as a necessary answer to AI-driven power demand. At the same time, rare earths are emerging as a strategic choke point. Supply chains dominated by China are now viewed through the lens of national security rather than cost efficiency. That shift has long tails for mining, processing, and geopolitics.

Overlaying all of this is policy uncertainty. Monetary policy, trade rulings, leadership at the Fed, court decisions on tariffs, and political cycles all sit squarely in the market’s line of sight. 2026 is not short of catalysts. It is oversupplied with them.

The final constraint is valuation. Equity multiples are stretched to levels last seen in the late 1990s.

Chart of the week

Equity valuations are at their highest since the late 1990s that does not preclude gains, but it narrows the margin for error. In this environment, theme selection matters more than beta. Leadership will rotate, narratives will fracture, and capital will move faster than consensus.

The message is not to retreat. It is to be selective. 2026 is shaping up as a year where markets reward those who understand where value is migrating rather than where it has already been allocate accordingly.

When the tide pulls back on the Greenback

It is probably too early in the year to strap into aggressive what if FX trades, but it is never too early to start watching the shoreline. Currencies rarely turn on headlines. They turn on flows, relative growth, and quiet shifts in confidence that only show up after the move is already underway. I am not in the outright dollar bearish camp yet, but FX is a fluid game, and the edge has always been about seeing the signposts before the crowd arrives. If 2026 becomes anything, it may well be the year of the flow for the dollar.

The raw fact is uncomfortable. The dollar just posted its worst year since 2017, down roughly 9 percent, and outside of that episode it was the weakest performance since the early 2000s. Since 2010, the greenback has only fallen on a full year basis five times. This is not a currency that rolls over often. When it does, it usually matters.

What makes the move more striking is not the decline itself, but the context. The dollar weakened through 2025 even as foreign investors continued to buy US equities. That is unusual. Historically, strong equity inflows have acted like a ballast for the currency, offsetting trade deficits and fiscal excess with portfolio demand. This time, the ballast worked, but only partially. The dollar fell anyway.

That raises the real question for 2026. Not why the dollar weakened, but what happens if the inflows slow, stall, or reverse.

There is already structural pressure. Over the past quarter century, the dollar’s share of global foreign exchange reserves has declined steadily, sliding from above 60 percent to just over 40 percent. This is not de dollarization in the dramatic sense, but it is erosion. Reserve managers move slowly, but they rarely reverse course without reason. Each marginal reduction matters because it represents a loss of captive demand.

At the same time, rate support has faded. The dollar’s strength over the last decade was built on yield differentials, particularly at the front end. As the US 2 year yield peaked and rolled over, the dollar followed. This is classic FX plumbing. When the carry disappears, the currency has to stand on fundamentals and confidence alone.

The paradox of 2025 was that the dollar weakened even with growth outperformance. The US economy grew faster than its peers, equities outperformed, and yet the currency still bled. That disconnect is what should make traders uneasy. If strong growth and equity inflows were not enough to stabilize the dollar, then the margin for error going forward is thin.

Some see this as the early stages of a secular shift. The argument is that the dollar has been trading within a rising channel for decades, remains structurally overvalued, and is vulnerable to a break that would echo the early 2000s. At the time, a sustained dollar decline coincided with a powerful commodities cycle and a broad reallocation toward real assets. The parallels are not exact, but the rhyme is becoming more pronounced.

Zoom out far enough and the picture becomes even starker. Since the creation of the Federal Reserve in 1913, the dollar’s long term trajectory has been one of decline punctuated by episodic bull markets. Those bull markets tend to coincide with global stress, capital flight, or US policy credibility. They do not last forever. When confidence ebbs, the currency does not collapse overnight, but it grinds lower as alternatives slowly regain relevance.

There is also a more tactical debate unfolding. Some technicians argue that the post GFC dollar uptrend remains intact on a long term basis, having survived multiple tests over the years. From that perspective, 2025 was a correction, not a regime change. That view deserves respect. Secular calls are easy to make and hard to time.

The truth likely sits between the extremes. The dollar does not need to collapse for it to underperform. It simply needs to lose its automatic bid. If reserve erosion continues, if rate differentials compress, and if equity inflows become less reliable, then the greenback becomes a funding currency rather than a destination. That alone would be a meaningful shift.

Looking into 2026, there are clear fault lines to monitor. Relative growth versus relative returns. Equity flows versus bond flows. Front end yields versus fiscal noise. And perhaps most importantly, whether the debasement trade continues to attract capital toward real assets and away from paper claims.

The dollar’s problem is not that it fell last year. It is that it fell while the tide was still coming in. Markets can live with that for a while. They struggle when the tide turns.

This is not a call to fade the dollar blindly. It is a reminder that currencies trade on marginal flows, not headlines, and that the most important FX trades tend to start as questions rather than convictions.

Trade the signposts. The answers usually arrive later.