Stock Market Outlook January 20, 2026: What to Watch This Week | US Daily Letter
Earnings Season, Inflation Data, and the Rotation Trade Face Their Biggest Test
Markets reopen Tuesday after the MLK Day holiday, and the week ahead is packed. Earnings season kicks into high gear with 183 companies reporting, inflation data drops Thursday, and the rotation trade that defined early 2026 faces its biggest test yet.
Here’s what matters this week.
Earnings Season: The Main Event
Fourth-quarter earnings season is here in force. About 7% of S&P 500 companies have reported so far, with 79% beating expectations. That’s a strong start. But this week is when we find out if the broadening rally—the rotation out of mega-cap tech and into cyclicals, value, and small caps—has fundamental support or if it’s just momentum chasing.
Tuesday, January 20:
∙ Netflix (NFLX) — The streaming giant is down 4% this year and more than 30% off its 52-week high. Analysts want to see subscriber growth, pricing power, and whether the crackdown on password sharing is still driving revenue. If Netflix beats and guides higher, it could reignite interest in battered growth stocks.
∙ United Airlines (UAL) — Travel demand, fuel costs, and forward guidance will tell us if consumers are still spending on experiences or pulling back.
∙ U.S. Bancorp (USB), KeyCorp (KEY), Fifth Third Bancorp (FITB) — Regional banks continue the financials parade. Net interest margins remain under pressure, but dealmaking and loan growth could surprise.
∙ D.R. Horton (DHI) — The homebuilder reports amid elevated mortgage rates and a cooling housing market. If they’re optimistic, it signals confidence in 2026 demand despite affordability challenges.
Wednesday, January 21:
∙ Johnson & Johnson (JNJ) — Healthcare has been a laggard, but 80% of U.S. healthcare companies are guiding earnings higher, according to FactSet. J&J’s report could set the tone for the sector.
∙ Charles Schwab (SCHW) — Trading volumes, asset flows, and net interest revenue will show whether retail investors are rotating or sitting on the sidelines.
∙ Halliburton (HAL) — Energy services. Oil prices have been volatile, and this report will reveal whether drilling activity is holding up or slowing.
Thursday, January 22:
∙ Intel (INTC) — The chipmaker is fighting for relevance in the AI boom. Investors want to see progress on turnaround efforts and whether they can compete with Nvidia and AMD.
∙ Capital One Financial (COF) — Credit quality, consumer lending, and Trump’s proposed 10% credit card interest rate cap will all be in focus.
∙ Intuitive Surgical (ISRG) — Robotic surgery demand and margins.
∙ CSX (CSX) — Rail freight volumes are an economic bellwether. If shipping is strong, the economy is strong.
Friday, January 23:
∙ SLB (formerly Schlumberger) — Another energy services giant. Combined with Halliburton’s Wednesday report, this will paint a picture of global energy demand.
What We’re Watching: Whether earnings support the rotation trade. If cyclicals, financials, and industrials post strong results and guide higher, the broadening rally continues. If they disappoint while tech stabilizes, money flows back to the Magnificent Seven.
Economic Data: Inflation and Growth
Wednesday, January 21:
∙ Construction Spending — Housing market health check.
∙ Housing Starts and Building Permits — Forward-looking indicators for residential construction.
Thursday, January 22:
∙ Third-quarter GDP (revised) — The economy is tracking strong. Confirmation of that keeps the Fed on hold and supports the “no landing” thesis.
∙ Personal Income and Personal Spending — Consumer strength or weakness.
∙ PCE Prices (Core PCE) — The Fed’s preferred inflation gauge. This is the big one. If inflation remains sticky above 2%, rate cut expectations get pushed further out. If it cools, June rate cuts stay on the table.
Friday, January 23:
∙ University of Michigan Consumer Sentiment (final) — Consumer confidence impacts spending. If sentiment is strong, the economy keeps humming. If it weakens, watch for cracks.
The Inflation Question
Friday’s jobs report showed the labor market is stable but weakening. That’s good news for inflation—wage pressures are easing. But Thursday’s PCE data will tell us if inflation is actually moving toward the Fed’s 2% target or staying stubbornly elevated.
Right now, markets are pricing in two quarter-point rate cuts in 2026, starting in June. If inflation stays hot, those expectations get pushed to late 2026 or scrapped entirely. If inflation cools, the Fed has room to cut sooner.
Higher rates for longer favors value stocks, financials, and energy. Lower rates favor growth, tech, and high-duration assets. Thursday’s PCE print could dictate which scenario plays out.
The Rotation Trade: Real or Mirage?
The story of early 2026 has been rotation. Small caps are up over 8%. Energy, materials, industrials, and consumer staples are all up nearly 6%. Meanwhile, five of the Magnificent Seven are in the red.
The equal-weighted S&P 500 is outperforming the cap-weighted index—a sign of broad market participation. Historically, that’s healthier and more durable than rallies driven by a handful of mega-caps.
But here’s the test: Do these sectors have the earnings to justify the move? Or are investors rotating into cyclicals just because they’re cheaper and tech feels overextended?
This week’s earnings will answer that. If financials, industrials, and materials post strong quarters and guide higher, the rotation is real. If they disappoint, money flows back to what’s been working: AI, mega-cap tech, and growth.
What Could Go Wrong
Geopolitical Risk: Iran protests continue. Trump threatened strikes, then backed off. If tensions escalate, oil spikes and risk assets sell off.
Credit Card Rate Cap: Trump’s proposed 10% cap on credit card interest rates is hanging over financials. JPMorgan’s CFO pushed back hard last week, warning it would hurt consumers. Watch how other banks address this during earnings calls.
Tech Weakness: If Netflix, Intel, and other tech names disappoint, the Nasdaq could roll over. The VIX spiked 18.94% on Friday—a sign volatility is creeping back in.
Rates: The 10-year Treasury yield hit 4.23% Friday, the highest since September. If yields keep climbing, it pressures valuations across equities, especially growth stocks.
What’s Working
Financials: Banks are benefiting from stronger dealmaking, trading revenue, and easing regulation. Even with net interest margin pressure, diversified revenue streams are carrying the sector.
Energy: Oil prices have stabilized. Geopolitical risk keeps a floor under crude. Energy stocks are cheap relative to historical multiples and are riding the cyclical rotation.
Industrials and Materials: AI data centers need copper, steel, and construction. Defense spending is rising. Infrastructure investment is accelerating. These sectors sit at the intersection of multiple mega forces.
Small Caps: After years of underperformance, the Russell 2000 is outpacing large caps. If rates stabilize and the economy avoids recession, small caps have room to run.
What’s Not Working
Mega-Cap Tech: Five of the Mag 7 are down year-to-date. Nvidia, Microsoft, Apple, Amazon, and Meta are all underperforming. Alphabet and Tesla are holding up, but the group as a whole is facing selling pressure as investors rotate.
Growth Stocks: High-duration assets are getting hit as rates stay elevated. If the 10-year yield pushes above 4.30%, expect more pain.
Bottom Line: Earnings Will Decide Everything
The MLK weekend gave Wall Street a breather. Now the real work begins.
Earnings season will determine if the rotation trade is sustainable or if it’s just a January head-fake. Economic data will determine if the Fed cuts rates this year or stays on hold. And geopolitical risks—Iran, Trump tariffs, China tensions—loom in the background.
The S&P 500 finished Friday at 6,940. The Nasdaq at 23,515. The Russell 2000 at 2,677.
By Friday, we’ll know if those levels hold or if volatility returns in force.
Key Takeaway: This week separates the winners from the pretenders. Earnings, inflation data, and market internals will show whether 2026’s early rotation is the start of a new cycle or just noise before the Magnificent Seven reassert dominance.
Trade accordingly.
—US Daily Letter Markets Desk