Midday Market Update: Rotation Into Cyclicals as AI Leaders Lag

Introduction#

The first session of 2026 opened with a risk-on tone that has cooled into midday rotation. According to Monexa AI’s intraday market dashboard, the S&P 500 is modestly higher while the Dow leads on cyclical strength, even as the Nasdaq fades on large-cap software and platform weakness. Under the surface, investors are tilting toward energy, basic materials, industrial adjacencies, and utilities, while trimming extended AI-linked software and platform winners from 2025. The move aligns with a narrative shift within artificial intelligence—away from pure training compute toward efficiency in inference—highlighted by recent licensing developments around NVIDIA and Groq that have re-oriented attention to datacenter memory and latency-sensitive workloads (Reuters; WSJ.

Macro inputs into the open were constructive. Manufacturing activity has held in expansion with the December Manufacturing PMI at 51.8, according to Monexa AI’s tape of the morning economic releases (originally reported on-air by CNBC). Policy headlines also mattered: a year-long delay to higher U.S. furniture tariffs offered immediate multiple and margin relief to import-heavy retailers, which helped drive early discretionary outperformance before the session’s rotation resumed, per Monexa AI. Abroad, sentiment was buoyed by the U.K.’s FTSE 100 crossing 10,000 for the first time, according to Monexa AI’s global market summary.

Market Overview#

Intraday Indices Table & Commentary#

By midday, breadth is solidly positive outside mega-cap growth. The Dow’s +0.44% outperformance reflects gains in equipment, industrial suppliers, energy, and select healthcare, while the S&P 500’s +0.08% masks sharp dispersion. The Nasdaq Composite is marginally negative (-0.03%), pressured by profit-taking in large software and platform names despite strong advances in semiconductors and memory. Volatility continues to grind lower with the VIX at 14.58 (down -2.47%), consistent with a “cautiously optimistic” tone noted by Monexa AI. Small-cap volatility (RVX +0.46% to 19.52) is steady, signaling normal position-setting rather than stress.

Price action from the open underscores the rotation: the S&P 500 traded as high as 6,894.87 early in the session before easing; the Nasdaq similarly faded from an intraday high of 23,585.96, while the Dow pushed to a session high near current levels (48,275.62), according to Monexa AI’s index tape. Volume is seasonally light versus 50-day averages, in line with a first-session-of-the-year pattern.

Macro Analysis#

Economic Releases & Policy Updates#

The early read on U.S. manufacturing showed continued expansion to close the year, with the December Manufacturing PMI at 51.8, per Monexa AI’s economic calendar review (as reported on-air by CNBC’s Rick Santelli). That figure maintained November’s level, supporting the case that factory activity is stabilizing rather than re-accelerating. Markets are also positioning ahead of the first full week of 2026 macro data—particularly December U.S. labor market reports and ISM prints—events flagged in Monexa AI’s week-ahead brief as likely catalysts for the Treasury curve and rate-sensitive equities.

On policy, the administration’s decision to delay higher tariffs on upholstered furniture, cabinets, and vanities by a year removed a near-term cost headwind and buoyed furniture retailers into the open, according to Monexa AI’s policy feed. Shares of import-reliant discretionary names rallied on the news before intraday rotation set in. Separately, the first business day of 2026 brings incremental wage tailwinds: minimum-wage increases in 19 states, impacting an estimated 8.3 million workers and adding roughly $5 billion in earnings, per Monexa AI’s macro roundup. While the immediate market impact is modest by midday, the policy mix—tariff relief for select goods and higher wages—leans supportive for consumer resilience in early 2026, particularly for value-oriented retailers.

Global/Geopolitical Developments#

European equities provided a constructive backdrop, with the U.K.’s FTSE 100 topping 10,000 for the first time, according to Monexa AI’s international market summary, adding to a strong 2025 handoff. For U.S. investors, the more material international storyline remains the continued capex cycle around AI infrastructure, where recent reporting highlights strong demand for NVIDIA H200 supply into China and ongoing hyperscaler investments from the U.S. cloud majors (Reuters. These developments, alongside the Groq licensing arrangement, have meaningful downstream implications for semiconductors, memory, optical interconnect, and power utilities, and they are clearly reflected in today’s sector leadership (energy, materials, and utilities) and in the outperformance of memory and storage among semiconductors.

Sector Analysis#

Sector Performance Table#

According to Monexa AI, sector leadership is anchored in defensives and cyclicals—Utilities (+2.30%), Energy (+1.37%), and Basic Materials (+0.36%)—while the laggards are Consumer Cyclical (-2.14%), Technology (-1.38%), and Communication Services (-1.30%). Two nuances stand out. First, there is a clear style rotation under way: investors are adding to cash-flow generative sectors leveraged to infrastructure, commodities, and the power grid, while trimming high-multiple platform and software names after a big 2025. Second, there is notable intra-sector dispersion, especially inside Technology. Monexa AI’s heat map flagged strong gains in memory and storage names alongside weakness in mega-cap software and certain application platforms. The result is a negative print for the overall Technology sector in the sector table despite pockets of pronounced strength.

A data discrepancy is worth noting transparently. Monexa AI’s sector-performance table shows Technology down (-1.38%) and Industrials modestly lower (-0.29%), while its intraday heat-map commentary captured earlier outperformance in capital equipment and construction-linked names and indicated Technology as “broadly mixed.” We prioritize the explicit sector table for point-in-time measurement, while treating the heat-map narrative as a time-stamped observation of earlier momentum that has since mean-reverted into midday. This is consistent with the index-level fade from morning highs in the S&P 500 and Nasdaq.

Within Energy, breadth is notable across upstream, services, and renewables. Exxon Mobil is up +1.48%, Chevron +1.72%, ConocoPhillips +3.09%, and Halliburton +3.54%, while solar leader First Solar advances +5.56%, per Monexa AI. Utilities, benefitting from defensiveness and the power-demand halo from AI infrastructure themes, also show strong single-name moves: Constellation Energy +4.66%, NRG Energy +3.72%, and Vistra +2.83%; energy-transition heavyweight GE Vernova is up +3.70%.

Basic Materials outperformance is broad across fertilizers, chemicals, and steel, including Mosaic +4.11%, Dow +3.57%, CF Industries +3.40%, Nucor +3.71%, and Freeport-McMoRan +1.33%. Real Estate remains mixed to soft as rate-sensitive REITs lag: Essex Property Trust -2.31%, Federal Realty -1.94%, and Welltower -0.23%, offset by modest gains in Prologis +0.46% and Realty Income +1.06%.

Company-Specific Insights#

Midday Earnings or Key Movers#

The memory-and-storage complex is the cleanest leadership cluster. SanDisk is up +12.23%, Micron Technology +7.99%, and Western Digital +6.69%, with Intel also higher (+6.60%) as investors bid legacy compute and packaging exposure, according to Monexa AI. The bid in memory aligns with recent reporting on AI inference efficiency and higher-bandwidth demand, as well as capacity and pricing dynamics that support DRAM/NAND suppliers as inference workloads proliferate (Reuters.

Among mega-caps, dispersion is wide. NVIDIA is up +1.72%, underpinned by continued enthusiasm into CES and clarity around the Groq licensing arrangement that integrates inference-oriented IP and leadership talent into NVIDIA’s ecosystem (Reuters; WSJ. By contrast, large enterprise software and platforms are fading: Microsoft -2.07%, Amazon -1.79%, Meta Platforms -1.29%, and Netflix -2.83%. Alphabet Class A is flat-to-up (+0.24%) while Alphabet Class C is near unchanged (+0.06%) after a late-December price-target lift tied to accelerating Search and AI monetization drivers, per Monexa AI’s broker recap.

Cyclical industrials and capex proxies are firm: Caterpillar +3.99%, United Rentals +3.69%, Quanta Services +4.61%, and Comfort Systems USA +7.00%, with Boeing +3.35%. These moves are consistent with Monexa AI’s early-session heat map that flagged strong breadth in equipment and infrastructure plays.

Healthcare leadership is selective but meaningful at the index level: UnitedHealth Group +2.23%, Molina Healthcare +3.34%, and Moderna +4.30% are higher, while some medtech lags: Intuitive Surgical -1.36%. In Financials, dispersion is elevated: Coinbase +5.26% rallies on crypto-beta flows while insurer bellwether Progressive slides -6.78%, and conglomerate insurer Berkshire Hathaway Class B is -1.24%; large banks show selective strength with Bank of America +1.21%. Retail is mixed: value and home-related names like Dollar Tree +3.25%, Target +2.22%, and Lowe’s +1.90% outperform, while Tesla -1.65% and Amazon lag.

Policy-sensitive furniture and home-furnishings names rallied sharply at the open after the tariff delay, as tracked by Monexa AI. RH is +8.89% and Wayfair +6.49% by midday. Brokerage commentary also colored single-stock flows: upgrades and reiterations late last week—such as buy ratings on Devon Energy (+2.90%) and Gilead Sciences (-0.64%) with limited Medicaid risk, and a reiteration on Datadog despite a recent pullback—were cited by Monexa AI’s broker-digest as supporting selective accumulation in energy while software remains choppy.

Extended Analysis#

Intraday Shifts & Momentum#

From the opening bell to midday, the tone has evolved from broad-based optimism to selective risk-on. The S&P 500’s early push toward 6,895 met supply as investors sold strength in crowded AI-platform winners and rotated into cash-generative cyclicals and defenses. The Dow’s leadership reflects that rotation: equipment, capex, and energy names are absorbing incremental capital while the Nasdaq lags.

Two crosscurrents define the session. First is the AI narrative’s pivot from training to inference. Recent reporting indicates that NVIDIA’s non-exclusive licensing arrangement with Groq adds inference-focused IP and leadership to its stack, a development that may accelerate low-latency, deterministic inference at scale (Reuters; WSJ. This has two immediate market expressions. One, memory and storage outperform as higher-bandwidth demand and inference-side architectures lift perceived earnings power for DRAM/NAND suppliers and storage integrators—consistent with outsized gains in SanDisk, Micron, and Western Digital. Two, enterprise software with the richest AI narratives is a source of funds as investors re-underwrite valuation against 2026 growth visibility, evidenced by declines in Microsoft, Amazon, and Meta Platforms despite constructive long-term demand.

The second crosscurrent is macro-rate sensitivity versus earnings leverage. Utilities and energy both lead—an unusual but increasingly common tandem when markets prize visible cash flows and dividend support while also embracing commodity and grid-upgrade upside. Materials’ outperformance, led by fertilizers, chemicals, and steel, supports the same theme: investors are willing to pay for cyclical earnings where balance sheets are clean and capital return is clear. Real Estate’s softness alongside lower spot volatility illustrates that rate sensitivity remains a key constraint on policy-driven days—even when rates are not the dominant intraday driver.

Global and policy headlines set a supportive but not euphoric backdrop. A milestone FTSE print and stable U.S. manufacturing help explain the low VIX and firm Dow, while the tariff delay produced early, targeted pops in discretionary. Wage increases across 19 states could incrementally support value retail and grocers as the quarter progresses, but the midday tape suggests investors are not chasing that theme indiscriminately; rather, they are preferring quality balance sheets and demonstrated pricing power.

For positioning into the afternoon, three data anchors matter. First, dispersion is high, which argues for position sizing discipline and selectivity—particularly within Technology, where semis and memory strength can coexist with software drawdowns. Second, volatility’s decline to 14.58 suggests benign risk-taking conditions; however, with the first 2026 jobs prints due in the coming days, risk budgets can shift quickly. Third, the S&P 500 is hovering near session mid-range after failing to hold morning highs; historically, that pattern favors stock-picking over index-level momentum in the back half of the day, according to Monexa AI’s intraday pattern studies.

Conclusion#

Midday Recap & Afternoon Outlook#

By midday on Friday, January 2, 2026, U.S. equities are mixed: the Dow leads (+0.44%), the S&P 500 is slightly higher (+0.08%), and the Nasdaq is fractionally negative (-0.03%). The day’s defining feature is rotation. Utilities (+2.30%), Energy (+1.37%), and Basic Materials (+0.36%) lead, while Consumer Cyclical (-2.14%), Technology (-1.38%), and Communication Services (-1.30%) lag, per Monexa AI’s sector dashboard. Within Technology, semis and memory are strong while software and platforms slip—an expression of the AI narrative’s shift toward inference efficiency and cost-to-serve, highlighted by NVIDIA’s licensing move with Groq (Reuters; WSJ.

Macro inputs are steady: manufacturing remains in modest expansion (PMI 51.8), wages tick higher across much of the country, and targeted tariff relief is boosting furniture names. Volatility is lower (VIX -2.47% to 14.58), supporting selective risk-taking. Into the afternoon, watch for continuation in cyclicals and utilities if index-level momentum stays muted, and for potential short-term mean reversion in profitable 2025 winners where intraday drawdowns have opened entry points—but remain valuation-disciplined and data-dependent ahead of jobs and ISM readings next week, as emphasized by Monexa AI’s week-ahead note.

Key Takeaways#

• According to Monexa AI, index performance is mixed at midday: Dow +0.44%, S&P 500 +0.08%, Nasdaq -0.03%; VIX 14.58 (-2.47%).
• Sector rotation favors cash-flow cyclicals and defensives: Utilities +2.30%, Energy +1.37%, Materials +0.36% lead; Cyclicals -2.14%, Technology -1.38%, and Communication Services -1.30% lag.
• In Technology, semis and memory outperform (Micron +7.99%, Western Digital +6.69%, SanDisk +12.23%), while mega-cap software/platforms slip (Microsoft -2.07%, Amazon -1.79%, Meta -1.29%).
• NVIDIA’s licensing arrangement with Groq underscores the market’s pivot toward AI inference, a theme reflected in today’s memory strength and software underperformance (Reuters; WSJ.
• Policy headlines matter at the margin: a one-year delay to furniture tariffs supports RH +8.89% and Wayfair +6.49%; minimum-wage increases in 19 states add an estimated $5 billion in worker earnings, per Monexa AI.
• Risk management: dispersion is elevated; use the weakness in software selectively and favor quality cyclicals and utilities where fundamentals and cash returns are clear, while staying nimble ahead of jobs and ISM data next week.