The US stock market has begun 2026 with impressive momentum, but this resilience is set to face significant tests in the coming week. The dual challenges of the corporate earnings season kick-off and crucial inflation data could introduce fresh volatility into a market that has largely shrugged off geopolitical tensions.
Strong Start Meets Looming Uncertainty
The S&P 500 has gained nearly 2% in January, building on a remarkable 2025 where the benchmark index notched its third consecutive year of double-digit percentage gains. This strength persisted even after a US military operation in Venezuela and discussions within the Trump administration about acquiring Greenland. Market experts note that investors are currently focused on a supportive trifecta: a robust corporate profit outlook, an easing monetary policy from the Federal Reserve, and anticipated fiscal stimulus.
"The foundation for the market is solid for this year," stated Michael Arone, Chief Investment Strategist at State Street Investment Management. However, he cautioned that the calm may be deceptive. "As we're starting January, the market may be underappreciating some of the events on the horizon that could likely produce higher volatility. It just seems a little too quiet."
Matthew Miskin, Co-Chief Investment Strategist at Manulife John Hancock Investments, observed that while gold has benefited from safe-haven flows, equities have been largely indifferent. The Cboe Volatility Index (VIX) remains near its 2025 lows. "The market's a bit numb to it," Miskin said, advising investors to consider defensive options as "everything is priced near perfection."
Bank Earnings and Consumer Health in Focus
The spotlight now turns to corporate fundamentals as the fourth-quarter earnings season commences. Major banks will lead the reporting, with JPMorgan Chase scheduled for Tuesday, January 13th, followed by Citigroup, Bank of America, and Goldman Sachs later in the week. Analysts, according to LSEG IBES data, expect overall S&P 500 earnings to have grown by 13% in 2025 and project a further rise of over 15% in 2026. For the financial sector specifically, fourth-quarter earnings are anticipated to be up about 7% year-over-year.
These bank reports are seen as a critical barometer for the US economy. "The banks are going to be telling you something that is going to be pretty important because they're on the front lines," explained Jack Janasiewicz, a portfolio manager at Natixis Investment Managers. He will be scrutinising the results for insights into consumer health, such as credit card payment defaults, given that consumer spending drives over two-thirds of US economic activity.
Inflation Data Holds Key to Fed's Next Move
The release of the December Consumer Price Index (CPI) on Tuesday, January 13th, carries immense weight. This inflation report is one of the last major data points before the Federal Reserve's policy meeting at the end of January. The central bank cut interest rates three times in late 2025 in response to a softening labour market, but the path forward in 2026 remains uncertain.
Nanette Abuhoff Jacobson, Global Investment Strategist at Hartford Funds, noted that Fed easing has contributed to the market's calm. However, she emphasised that "all the inflation numbers are going to be critical to what Fed policy is going to look like." She added, "If the mosaic is suggesting that inflation is inching higher, then there are going to be questions about whether the Fed is going to ease in 2026 or how much they can ease."
The return of normal data flow after a disruptive 43-day government shutdown late last year further raises the stakes for these releases. Investors seeking to confirm the strength of the current bull market, now in its fourth year, will find their answers in the corporate profit figures and inflation trends revealed this week.
