Stocks Brace for Consolidation After 3-for-3 Start to 2026
As semiconductors cool off after a 7.6% gain and investors pivot to labor data and geopolitics, I'm incorporating one of my 2026 goals into my game plan.
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Following a strong start to the new year, stocks are set for some consolidation and profit-taking. The major indexes started "3 for 3" in the first sessions of 2026, with the Russell 2000 (IWM) leading the charge with a 4% gain. That compares with the Magnificent Seven (MAGS) , which has lost 0.5% so far in 2026.
Tax-Loss Rotation
Typical new near tax moves and positioning have been driving the action. Small-caps have benefited from the January Effect, in which investors buy stocks sold in the prior year to harvest tax losses. Conversely, the Mag 7 have encountered the inverse of that action as investors delayed triggering capital gains realization until the new tax year began.
Geopolitical Headwinds and Energy
Investors are now shifting their attention to global events and macroeconomics. President Trump's recent moves regarding Venezuela are weighing on oil prices. Following a dramatic weekend that saw the capture of Nicolás Maduro, the U.S. announced it would receive between 30 and 50 million barrels of sanctioned crude from Venezuela's interim authorities, with proceeds intended for a transition fund.
Geopolitical friction is also surfacing in Asia. Growing trade and military tensions between China and Japan — including Beijing's recent export curbs on dual-use goods and a new investigation into Japanese semiconductor chemicals — are impacting defense and tech supply-chain stocks.
Meanwhile, gold and silver are seeing profit-taking after a "fast and furious" run that saw silver break above $80/oz earlier this week.
Tech and the AI Debate
In the tech sector, Nvidia (NVDA) issued upbeat comments about growth at CES 2026, boosting its revenue outlook even higher. However, the "Bubble Bears" continue to raise concerns about valuations across the AI sector.
Chip stocks (SMH) have been the hottest group in the market, but they are pulling back on Wednesday morning after a very hefty 7.6% gain so far this year.
Economic Data and the Fed
Economic news is back in the spotlight as investors await the December employment data on Friday. The JOLTS Job Openings and ADP Employment reports are being released Wednesday morning, followed by weekly unemployment claims on Thursday.
The next Federal Reserve meeting concludes on Jan. 28. According to Fed Funds Futures, there is currently only a 16% chance of a rate cut this month. The odds of a cut rise to around 47% for the Mar. 18 meeting, though these expectations will remain fluid as more labor and inflation data arrive.
My 2026 Game Plan
My game plan is to play stronger defense and not let positions slip too far. One of my goals in 2026 is to be more aggressive at selling mild weakness and then rebuying as technical conditions improve.
Making up losses is one of the most unproductive uses of a trader's time. However, if you are too quick to sell, you risk being "shaken out" of good stocks, so you must be ready to rebuy even if you have to pay a slightly higher price to get back in.
We have a negative open on the way.
At the time of publication, Rev Shark was long NVDA.
