Markets surged to fresh all-time highs last week, shrugging off geopolitical chaos and a weak jobs report to close the first full trading week of 2026 with conviction.

The S&P 500 gained approximately 1.5% for the week, closing Friday at a new record above 6,970. The Dow Jones added roughly 1.3% while the Nasdaq jumped 1.8%, with all three major indexes posting their strongest weekly performance since mid-December.

What's remarkable isn't just that stocks went up, it's what they ignored to get there.

On Friday morning, the December jobs report showed just 50,000 payrolls added versus expectations of 70,000. That's the kind of miss that typically sends markets into at least a brief panic about economic slowdown. Instead, the S&P 500 rallied 0.6% on the day. Why? Because the unemployment rate actually fell to 4.4% from 4.5%, and traders immediately interpreted the weakness as "good news" - meaning the Fed is now locked into holding rates steady rather than hiking.

The 10-year Treasury yield held remarkably steady around 4.18% through Friday's close, barely budging despite the jobs data. The VIX stayed calm in the mid-14s. And credit spreads remain tight, with high-yield bonds trading at just 3.2 percentage points above Treasuries. That signals zero concerns about recession or corporate stress. This is a market that wants to go higher and is finding reasons to justify it.

If I were to sum up last week in one sentence it would be this: The December jobs report eliminated any remaining uncertainty about the Fed's January meeting, and markets loved it.

Fed funds futures now price in a 97% probability that the Fed holds rates steady at the January 27-28 FOMC meeting, up from 88% before Friday's data. More importantly, traders aren't pricing in a single rate cut until at least June 2026.

Think about what that means. The Fed hiked rates from 0% to 5.25-5.5% to kill inflation, and now they're stuck there. They can't cut because core inflation is still running at 2.8% - well above their 2% target. But they also can't hike further without risking a recession that would crater their credibility.

So they're doing nothing, which creates a very interesting environment for risk assets.

The December jobs number (just 50,000 added jobs) would normally be concerning. But unemployment fell because the labor force participation rate dipped slightly and average hourly earnings rose 3.9% year-over-year, suggesting wage pressures aren't easing. This is the Goldilocks scenario the market has been betting on. At this point, growth is slowing just enough to keep the Fed on hold, but not so much that recession becomes a real threat.

Stanley Druckenmiller said it perfectly on CNBC last week: "The market priced in six cuts in 2024 and got three. Now we're pricing five cuts in 2025, and I'd bet on two."

He's right that markets are overly optimistic about cuts, but as long as the Fed doesn't hike, and as long as corporate earnings keep growing (more on that in a moment), stocks can keep grinding higher even without rate cuts. The Fed being "on hold" is almost as good as the Fed cutting if you're an equity investor.

The other major development last week was President Trump's Friday meeting with oil company executives about pouring $100 billion into rebuilding Venezuela's oil infrastructure following the military operation that captured Nicolás Maduro. I wrote a deep-dive on this separately, but the macro takeaway is that oil markets completely ignored what should have been a major supply disruption story.

WTI crude traded sideways around $59 per barrel all week. Brent settled near $63. Despite Iran experiencing its largest protests since 2022-23, despite the US seizing multiple Venezuelan oil tankers, despite Trump threatening to cut off Cuban oil supplies, oil prices did essentially nothing.

Why? Because global supply remains abundant. OPEC+ keeps adding barrels back to the market, and demand signals from China are weak.

Peter Zeihan warned last week that "we are at the start of a very significant international shock in energy" as the US sets precedents for seizing shadow fleet tankers that service Venezuela, Iran, and Russia. But markets aren't buying it yet. The geopolitical risk premium in oil has completely evaporated. That tells me that traders believe any supply disruptions will be more than offset by weak demand and rising non-OPEC production.

For equity investors, this is absolutely bullish for the moment. Lower oil prices mean lower input costs for corporations, lower gasoline prices for consumers (supporting spending), and reduced inflation pressure that might otherwise force the Fed's hand. The Trump administration wants WTI at $50, and while I'm skeptical they'll get there without destroying US shale production, the trend is clearly lower for crude. That's a tailwind for stocks.

The big event this week is CPI on Wednesday, January 15. Consensus expects headline inflation at 2.8% year-over-year and core at 3.2%.

Any upside surprise would reignite fears that the Fed might have to keep rates higher for longer, which could pressure valuations. Remember, the S&P 500 trades at 22x forward earnings, matching the peak from 2021. That multiple is justified only if inflation keeps falling and rates eventually come down. If inflation stalls here, the valuation case weakens significantly.

Q4 earnings season kicks off this week with the big banks reporting Friday (JPMorgan, Citigroup, Wells Fargo, Bank of America). Consensus expects S&P 500 earnings growth of about 11% for Q4 2025. If the banks beat and guide confidently for 2026, that sets a positive tone. If they sound cautious about loan growth and credit quality, that would be the first warning sign that the economic slowdown visible in jobs data is starting to hit corporate profits.

I'm also watching high-yield credit spreads closely. 3.2% above Treasuries suggests the credit markets see zero recession risk and minimal default concerns. But if spreads widen above 3.5-4.0%, that would be the credit market telling you something the equity market doesn't want to hear yet.

Finally, keep an eye on the dollar index (DXY). The greenback has been strengthening recently, which typically pressures emerging markets and commodities. If DXY breaks above 110, that becomes a headwind for US multinationals' earnings and could weigh on risk assets broadly.

In my opinion, this market wants to go higher in the near term. The combination of stable Fed policy, falling oil prices, resilient corporate earnings expectations, and still-healthy consumer spending creates a constructive setup for Q1 2026.

But I'm not complacent. The S&P 500 just did something it's only done five times in 97 years - it posted three consecutive years of 16% gains. History says the fourth year is a coin flip. Sometimes the boom continues (like the late 1990s), sometimes it ends abruptly (2000, 2022).

With valuations at 22x forward earnings and the Fed unable to provide any support if things go wrong, the risk/reward is getting less attractive the higher we go.

Within equities, I'm tilting toward sectors that benefit from the current environment:

I'm avoiding:

Stay invested but disciplined. Let the market prove it can break out to new highs on broadening participation and improving fundamentals. The bull market isn't dead, but it's getting older and more expensive.

The Earnout Investor provides analysis and research but DOES NOT provide individual financial advice. Jamie Dejter may have a position in some of the stocks mentioned. All content is for informational purposes only. The Earnout Investor is not a registered investment, legal, or tax advisor, or a broker/dealer. Trading any asset involves risk and could result in significant capital losses. Please, do your own research before acquiring stocks.