The Stock Market Is Still Coiled Yet Again. Which Way?

* Analyzing the markets with Richie Naso, a Wall Street veteran of over 40 years and former member of the NYSE.

• DJIA 52-wk: +9.76% | YTD: +1.73% | Wkly: -0.42%
• S&P 500 52-wk: +14.87% | YTD: +1.37% | Wkly: +0.34%
• NASDAQ 52-wk: +19.54% | YTD: +0.95% | Wkly: -0.17%
• Microsoft 50-WK: +3.67% | YTD: -11.03% | Wkly: -7.65%

U.S. equities experienced a volatile, earnings-driven week, with leadership narrowing and small caps under pressure as investors digested earnings, inflation data, and a surprise shift in Federal Reserve leadership expectations.

• Russell 2000: -2.1%, showing clear risk-off behavior in small caps
  

Russell 2000 vs. S&P 500 – Relative Strength Analysis

Current Trend Setup

• Small caps have been outperforming recently, at times reaching multi-day/record runs vs S&P 500 — signaling broadening participation beyond mega-caps.
• Analysts have noted strong small-cap earnings expectations and forecasts that Russell earnings could grow significantly faster than S&P 500 earnings (higher projected EPS growth).
  

Interpretation of the Russell/S&P Relationship

Bullish Case for Small Caps (Russell 2000 outperformance):

• Fed dovish expectations favor smaller, debt-sensitive companies.
• Valuation discount vs S&P 500 attracts rotation out of mega-caps.
• Continued technical momentum and breakout potential implies higher targets for small caps.
  

Despite the late-week pullback, all major indices remain positive year-to-date.

1. Earnings Take Center Stage

• Earnings growth—not multiple expansion—is now driving index gains.
• Tech is expected to account for ~60% of S&P 500 EPS growth in 2026, keeping leadership concentrated.
• Results were generally solid, but expectations were extremely high, leading to muted stock reactions.

2. Fed Uncertainty Spikes Volatility

• Markets reacted negatively to news surrounding a potential change in Fed leadership, raising concerns about future policy direction.
• This uncertainty pressured risk assets late in the week.

3. Sharp Reversal in Commodities

• Gold fell ~11% and silver plunged over 30% during the week, signaling aggressive risk unwinds after overcrowded trades.
• The moves spilled over into materials and small-cap equities.
  

Sector & Style Highlights

• Outperformers: Consumer Staples, select Financials
• Underperformers: Materials, Small Caps, speculative growth
• Small caps lagged badly, indicating investors favored balance sheets and earnings certainty over beta.

Market Tone

• Choppy and headline-driven
• Dip-buying continues in large caps
• Risk appetite is selective, not broad
• Volatility picked up late in the week as uncertainty increased
  

Big Picture Takeaway

The market remains coiled:

• Earnings are supporting prices
• Leadership is narrow
• Investors are cautious but not exiting risk wholesale

Until dip-buying fails or earnings materially disappoint, the primary trend remains intact, but small caps are clearly being de-risked.

MICROSOFT:

Sees profits jump 60%: Tops forecast. MSFT said on Wednesday that it continued to spend heavily on data centers for artificial intelligence with $37.5 billion in capital expenditures in its most recent quarter, up about 65%. After the earnings release on Wednesday, investors seized on just the parts related to AI spending.

Important Catalysts for Next Week

1) Earnings Continuation

Earnings are still shaping market sentiment — beat/miss + forward guidance will dictate short-term stock moves, especially in tech, consumer discretionary, and cyclical names.
Bullish earnings can lift broad indexes, while weak guidance often pressures them.

2) Fed & Interest Rate Expectations

Market pricing in future rate changes continues to influence valuation and sector rotation. A confirmation of easier monetary policy (hawkish or dovish speech) would be a major swing factor.

3) Economic Data

Watch:

• Employment data (claims, payrolls)
• CPI / inflation surprises
• Manufacturing / services PMIs

Data significantly above/below expectations can shift tactical risk positioning.

4) Flight to Safety / Risk Assets

If geopolitical tensions widen (e.g., energy price spikes, Middle East concerns), expect:

• Safe-havens like gold to re-gain traction
• Risk assets to fall or see volatility expand — especially cyclicals

Microsoft’s earnings refocused attention on AI spending, which is a near-term concern in my view. That said, investors continue to buy dips, and until that behavior changes, it remains difficult to bet against this market.

— Richie

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