Capricorn Reigns: Markets and the Stars Align in Early 2026

WEEKLY MARKET RECAP & ASTROLOGICAL OUTLOOK | Week Ended January 2, 2026

As 2025 closed its books, financial markets delivered a mixed performance in a transition marked by both profit-taking and a pause in bullish sentiment. The S&P 500 and Dow Jones Industrial Average each pulled back approximately 1% from record highs before recouping partial ground during the first trading session of 2026. Despite this soft start to the year, the broader economic and investment narrative remains underpinned by technology-driven momentum, resilient labor data, and cautious optimism about monetary policy direction. With Capricorn dominating the planetary field, the tone ahead is one of sober recalibration.

Markets Take a Breather, but Momentum Remains

The S&P 500 ended 2025 with a 17.9% total return—its third consecutive year of double-digit gains. However, the pace slowed from the 25.0% gain in 2024 and the blistering 26.3% rally in 2023. The Magnificent Seven mega-cap stocks accounted for a staggering 42% of the index’s annual return, highlighting the increasing concentration of leadership. Those same stocks now represent 34.9% of the S&P’s total market capitalization, up from 33.5% a year ago.

Fixed income markets rebounded in 2025, as the 10-year U.S. Treasury yield slipped from a peak of 4.80% in January to finish the year at 4.17%. A 7.3% total return in the U.S. bond benchmark reflects easing inflation pressures and increased confidence in a soft landing. However, rate expectations remain nuanced heading into 2026, with investors closely watching employment data and corporate earnings.

Early 2026 Returns Mixed Across Styles and Regions

The first week of 2026 saw modest losses across most major U.S. indices. The S&P 500 fell 1.0%, while the tech-heavy Nasdaq dropped 1.5%. Sector performance was mixed: energy (+3.3%), utilities (+1.0%), and industrials (+0.5%) led, while consumer discretionary (-3.2%) and information technology (-1.5%) lagged. Bond returns were slightly negative, with the U.S. aggregate index down 0.2%. Gold lost 4.8%, and oil gained 1.1%.

International markets offered a more constructive tone. The MSCI EAFE rose 0.6%, with strong showings from Spain (+1.8%) and Italy (+1.4%). Emerging markets outperformed, gaining 2.3% on the week, driven by a 6.4% rally in Korea and a 3.7% jump in Taiwan. China also advanced 1.9% as policy support measures took hold.

Labor Market Focus as Job Growth Cools

All eyes are on Friday’s employment report to assess the trajectory of the labor market. November’s delayed report showed a surprise decline of 105,000 jobs followed by a rebound of just 64,000 in December, with the unemployment rate ticking up to 4.6%—its highest since 2021. Over the past six months, job growth has been negative in half the reports. A softening labor market could accelerate the timeline for potential rate cuts from the Fed.

Fund Flows Reflect Defensive Repositioning

Fund flows data through November reveal a strong pivot into fixed income. Taxable bonds saw $50.2 billion in monthly inflows and $508.2 billion over the past 12 months. In contrast, U.S. equity funds remain under pressure, shedding $8.7 billion over the trailing year. Among fund categories, large blend equity funds and ultrashort bond funds captured the most new capital, while growth-oriented categories such as large growth and mid-cap growth saw sizable outflows.

This realignment reflects increasing preference for income-generating assets and risk mitigation amid valuation concerns and late-cycle signals.