Hard Power Rotation Sets The Tone For Monday’s Open

Introduction#

The first Monday of 2026 opens against a backdrop of rising geopolitical risk and a visible rotation beneath the surface of major U.S. indices. According to Monexa AI, the S&P 500 (^SPX) finished Friday at 6,858.47 after a +12.97 move, up +0.19%, while the Dow (^DJI) closed at 48,382.39 with a +319.11 gain, up +0.66%. The Nasdaq Composite (^IXIC) slipped to 23,235.63, down -6.36 or -0.03%. Volatility firmed: the CBOE Volatility Index (^VIX) rose to 15.19, up +4.69%, signaling modest hedging into the new week. Those end‑of‑day figures frame a market that is cautiously risk‑on but alert to headline risk.

Over the weekend, geopolitical developments dominated the tape. European defense shares rallied after the U.S. captured Venezuelan leader Nicolás Maduro; Reuters reported defense leadership across regional indices in early Monday trading, underscoring a revival of the “hard power” bid (Reuters. Energy headlines stayed busy as well: OPEC+ said it would keep production steady through the first quarter amid uncertainty around U.S. policy toward Venezuelan barrels (Reuters. Meanwhile, Bitcoin traded near the $93,000 mark overnight as traders interpreted the Venezuela story and steady OPEC+ stance as easing some inflation fears, with short liquidations helping the token reclaim its 50‑day moving average, according to Monexa AI’s aggregation of CNBC reporting.

The key narrative setting up today’s open is straightforward: defense and energy strength, AI hardware resilience, and software profit‑taking, all colliding with a pivotal U.S. jobs week that could recalibrate rate expectations.

Market Overview#

Yesterday’s Close Recap#

According to Monexa AI, U.S. benchmarks closed Friday with a defensive undertone under the hood despite headline resilience. The S&P 500’s move was restrained by profit‑taking in mega‑cap software and platform names, while cyclicals and energy led breadth. The Dow’s outperformance reflected strength in industrials and energy, while the Nasdaq’s fractional decline masked notable dispersion within technology: semiconductors and equipment rallied as software lagged.

The S&P 500 traded within a 6,824–6,895 intraday range and remains within sight of its 52‑week high at 6,945.77, per Monexa AI. The Dow sits near record territory as well, with Friday’s session marking a bid for industrial cyclicals. The uptick in ^VIX aligns with a weekend risk premium from Venezuela and an approaching U.S. employment print.

The tape’s internals were decidedly rotational. Monexa AI’s heat‑map shows a “barbell” within technology: semis and equipment rallied hard—MU closed up +10.51%, LRCX gained +8.11%, and ASML surged +8.78%—while large software saw profit‑taking, with MSFT down -2.21% and ADBE off -4.77%. Energy, utilities, and basic materials outperformed; defensives like healthcare and consumer staples provided ballast; real estate lagged modestly as rate sensitivity persisted.

Overnight Developments#

The geopolitical impulse sharpened over the weekend. Reuters highlighted that European defense stocks led gains Monday as investors priced a higher global risk premium following the U.S. capture of Venezuela’s leader (Reuters. Relatedly, reporting indicated that oil markets remain supplied for now even as Venezuela’s production outlook is clouded, with OPEC+ keeping output steady to start the quarter (Reuters. Monexa AI’s news roll also flagged that money markets stayed calm as traders assessed the weekend’s events.

In Asia, Japanese government bonds fell on the first trading day of 2026 as equities strengthened, a reminder that the global rate backdrop is fluid. On the corporate front, Foxconn flagged a 22% year‑over‑year revenue surge in Q4 as AI server shipments ramped, a supportive read‑through for NVDA. Nvidia’s CEO Jensen Huang is slated to keynote CES today, an event investors often mine for product‑cycle cues.

Macro Analysis#

Economic Indicators to Watch#

The week’s marquee U.S. macro event is the jobs report, which multiple outlets and Monexa AI’s aggregated coverage characterize as a “crucial” test for a market that stumbled to start the year. While specific economist estimates were not provided in the data set, the setup is clear: a hotter print would collide with the “AI‑driven inflation risk” chatter highlighted in weekend pieces and potentially embolden the modest uptick in implied volatility. A cooler report, by contrast, could validate the rotation into cyclicals if accompanied by stable commodity prices and ongoing AI capex.

Investors should also watch for scheduled December sales updates at major retailers later this week, most notably Costco on Wednesday, January 7. Telsey Advisory reiterated an Outperform on COST and projected slower—but still positive—comps, a micro check on consumer momentum heading into 2026.

Global/Geopolitical Factors#

Reuters reporting confirms that the U.S. intervention in Venezuela has raised geopolitical risk and sparked a bid for defense equities, particularly in Europe on Monday’s open (Reuters. Additional Reuters coverage notes OPEC+ will keep output steady despite the uncertainty, which has kept oil prices relatively stable in the near term but preserves upside tail risk to energy if supply disruptions escalate (Reuters. Monexa AI’s compiled commentary also highlights a debate over whether AI investment could rekindle inflation in 2026, a theme that intersects with both energy and labor‑market readings this week.

Sector Analysis#

Sector Performance Table#

According to Monexa AI’s sector dashboard, Friday’s close showed the following moves by sector. Note that Monexa AI’s intraday heat‑map indicated stronger gains in some cyclical cohorts—particularly energy and industrials—than the sector close data capture, reflecting methodology differences. We prioritize official close data for the table and use the heat map to contextualize dispersion under the surface.

The most consequential nuance is technology’s bifurcation. Hardware‑adjacent subsectors and semi‑cap equipment printed outsized gains—MU +10.51%, LRCX +8.11%, ASML +8.78%, and NVDA +1.26%—yet cap‑weighted software heavies dragged the broader sector negative, with MSFT -2.21%, ADBE -4.77%, CRM softer, and platform names like META -1.47% and NFLX -2.95% under pressure. The takeaway for allocation is simple: AI infrastructure spend continues to buoy components and equipment even when software rerates lower on profit‑taking.

Energy and utilities rallied into the weekend with breadth. Oilfield services SLB and HAL tacked on +4.74% apiece, while E&Ps like COP gained +3.30% and integrated majors XOM and CVX advanced. Utilities strength skewed toward generation and energy‑adjacent names: NRG +4.35%, GEV +3.97%, CEG +3.67%, and NEE +0.81%.

Financials were mixed but constructive as trading proxies rallied—IBKR +4.54%, GS +4.02%, JPM +1.01%—even as select insurers like PGR fell -6.85% on idiosyncratic pressure. Industrials leaned higher led by aerospace and heavy equipment: BA +4.91%, CAT +4.46%, URI +4.42%, and GE +4.13%. Basic materials saw broad‑based strength with steels NUE +3.86% and STLD +3.90%, chemicals DOW +3.81%, and miners FCX +2.25% all advancing, reinforcing the cyclical tilt.

Where the data conflict: Monexa AI’s sector close shows technology at -1.02%, whereas the heat‑map summary referenced a small positive for the sector on internal breadth. We prioritize the close data for portfolio accounting and interpret the heat‑map as a sign that leadership rotated intraday, with semis and equipment offset by software weakness; cap‑weighted closures settled negative.

Company‑Specific Insights#

Earnings and Key Movers#

In AI hardware, Friday’s marquee tape action belonged to ASML, which jumped +8.78% after Aletheia Capital double‑upgraded the ADRs and lifted the target to €1,250 (about $1,500 per ADR), citing stronger 2026–2027 demand for EUV and DUV tools. That dovetails with earlier Reuters‑reported bookings strength in 2025 and aligns with the ongoing hyperscaler capex cycle. Foxconn’s Q4 revenue surge, driven by AI server racks, further validates demand for Nvidia‑powered systems heading into 2026, a supportive data point for NVDA into CEO Jensen Huang’s CES keynote today.

Within software and platforms, dispersion remained the rule. GOOGL saw a target hike to $385 from Citizens on accelerating search and medium‑term AI catalysts. MSFT traded lower -2.21% after a strong run, with investors scrutinizing Copilot’s monetization ramp and broader AI services pricing. META was softer -1.47% amid mixed social‑ad sentiment stories and internal AI staffing chatter.

Energy and defense stayed bid on macro. XOM +1.92% and DVN +3.39% rallied alongside services SLB and HAL as investors weighed Venezuela uncertainty against steady OPEC+ policy. Defense primes climbed: LMT +2.77%, RTX +2.10%, NOC +2.71%, GD +2.00%, and GE +4.13% via aerospace exposure. Reuters’ early‑Monday note on European defense leadership provides relevant read‑through for U.S. peers into today’s open (Reuters.

On the consumer tape, COST is a mid‑week catalyst with December sales due Wednesday, January 7, after the close, per Telsey’s preview. Elsewhere, RIVN slipped -1.52% Friday after Q4 deliveries missed estimates amid broader EV‑demand normalization. Discretionary showed a split personality: big‑box resilience with WMT +1.21% and TGT +2.82%, home‑improvement momentum via LOW +2.38%, but weakness in higher‑beta names like TSLA -2.59% and CVNA -5.16%.

Crypto‑sensitive equities benefited from Bitcoin’s push back through its 50‑DMA. COIN advanced +4.59% Friday, with Monexa AI attributing part of the crypto move to reduced inflation fears tied to oil headlines and a short‑covering burst. That lens also helps reconcile why oil equities surged even as spot crude was reported largely unchanged in early trade, per aggregated overnight coverage.

Healthcare demonstrated defensive stability with selective growth upside: MRNA +4.65% and insurers UNH +1.91% and HUM +3.31% were standouts, while mega‑cap pharma like LLY rose +0.53%. In real estate, rate sensitivity persisted, with SPG -0.62%, while pockets like lodging HST +2.43% and logistics PLD +1.09% improved.

Extended Analysis#

Global Overnight Shifts: How They May Drive Today’s Open#

The “hard power” bid is real in Europe and likely to echo in the U.S. open. Reuters’ early‑session coverage highlighted defense leadership on the continent following Venezuela’s shock developments, and U.S. primes rallied into Friday’s close in anticipation. Investors should, however, separate sentiment from backlog: Monexa AI’s research summary emphasizes that, as of this morning, there are no Tier‑1 sources quantifying incremental backlog or revenue directly tied to Venezuela for LMT, RTX, NOC, GD, or BA. That caveat matters for duration; sector strength can persist without immediate contract attribution, but earnings translation depends on order timing and program mix.

Energy’s setup is more nuanced. Reuters notes OPEC+ is holding output steady and that crude prices showed only modest moves despite the geopolitical shock. Yet equities in E&Ps and services ripped higher Friday and were cited as strong again early Monday. That divergence likely reflects equity investors’ pricing of tail risks—policy shifts on Venezuelan barrels, potential sanctions dynamics, or logistics—rather than spot balances alone. It also rhymes with the inflation debate: if energy prices climb meaningfully, the “AI‑driven inflation” worry flagged in weekend pieces could complicate the Fed‑path narrative just as a crucial jobs report lands. For today, watch whether oil equities extend while crude stays muted; that would confirm that investors are paying up for optionality and cash‑flow torque more than immediate commodity beta.

Domestic Sectors to Watch Before the Bell#

Defense and aerospace should open firm on European read‑throughs. Inside industrials, heavy equipment outperformance—CAT +4.46%, URI +4.42%—mirrored the cyclical value bid and could continue if the jobs report later this week points to steady demand and infrastructure activity. In technology, look for continuation of the hardware‑over‑software pattern: NVDA has a near‑term catalyst at CES; ASML rides estimate revisions and tool‑demand narratives; MSFT, ADBE, and other software leaders may remain tactically heavy if investors use them as funding sources for cyclicals and AI infrastructure.

Consumer behavior remains bifurcated. Discount and value channels outperformed—DLTR +3.81%, DG +3.05%—while e‑commerce bellwethers like AMZN softened -1.87%. With COST set to report December sales Wednesday evening, the market will get a high‑frequency read on traffic, ticket, and category mix that can either validate or challenge the ongoing tilt toward value.

Technical Context and Risk Indicators#

From a level perspective, the S&P 500 remains within a two‑percent band of its 52‑week high per Monexa AI. The Nasdaq’s slight decline on Friday hides the constructive action in semiconductors; if that leadership persists, dips in software may be more about rotation than a top. The move higher in ^VIX to 15.19—still low in absolute terms—suggests options markets are pricing an event‑laden week rather than a regime change. Small‑cap volatility (^RVX) at 19.31 fell -0.62%, implying that the bid in cyclicals has not yet stressed the small‑cap risk complex.

Supply Chain and Policy Watch: Rare Earths and Defense Margins#

Defense manufacturers continue to cite rare‑earth magnets and critical components as potential bottlenecks in filings, and U.S. policy is responding. The Department of Defense has publicly outlined a “mine‑to‑magnet” initiative to onshore rare‑earth supply chains, a medium‑term tailwind for supply security and, by extension, delivery schedules and margin predictability in programs touching LMT and RTX. Reuters coverage in 2025 detailed commercial partnerships aimed at expanding domestic refining and magnet capacity. For investors, contract type (fixed‑price vs. cost‑plus) and price‑escalation clauses will be key determinants of how material inflation flows through P&Ls in 2026–2027.

Conclusion#

Morning Recap and Outlook#

The market heads into Monday’s open balancing three forces. First, geopolitics are pushing investors toward defense and, to a degree, energy, with European price action an early tell for U.S. execution. Second, AI infrastructure spend continues to favor hardware suppliers and semi‑cap equipment over large‑cap software, a pattern reinforced by Friday’s dispersion and overnight AI‑server commentary. Third, the macro calendar—anchored by the U.S. jobs report—interacts with “AI‑driven inflation” concern and energy tail risks to keep volatility modestly bid.

Actionably, investors should monitor whether Friday’s rotations persist at the open. If defense holds gains without commodity confirmation, the bid is likely sentiment‑led but could endure absent de‑escalation. If energy equities continue to outrun crude, it will reinforce that the market is paying for cash‑flow torque and optionality. In technology, watch NVDA at CES and tool‑maker ASML for confirmation that hyperscaler capex remains intact; any reversal there would challenge the cyclical upgrade in semis and equipment. On the consumer front, COST mid‑week sales will refine the value‑vs‑premium debate that defined much of Q4.

Across sectors, there is evidence of durable breadth outside of mega‑cap software. Industrials and basic materials leadership, combined with improving financials risk appetite, is consistent with a “cautiously risk‑on” tone. The uptick in ^VIX and the strategist commentary that only a handful of U.S. stocks screen as “buyable” at 2026’s start are reminders to lean on dispersion, not beta, for alpha. That argues for selectivity, position sizing, and attention to catalysts—geopolitical, macro, and company‑specific—this week.

Key Takeaways#

Defense and energy remain the early‑week tone setters as investors recalibrate risk premia after Venezuela. Reuters’ early‑Monday note on European defense leadership points to a supportive open for U.S. primes, but concrete backlog impacts have not yet been quantified. The equity‑commodity divergence in energy suggests investors are paying for optionality rather than spot fundamentals alone, with OPEC+ holding output steady to start Q1.

Technology’s leadership is migrating toward hardware, semiconductors, and equipment, supported by hyperscaler capex signals and specific catalysts like ASML upgrades and NVDA product‑cycle visibility at CES. Large‑cap software looks like a funding source in the near term, with MSFT and ADBE softness contrasting with gains in MU and LRCX.

Macro‑wise, the jobs report later this week is the swing factor for rates and sentiment. A firmer labor print would interact with the “AI‑driven inflation” narrative and could keep volatility supported; a cooler report might validate cyclical leadership if commodities remain stable. Bitcoin’s strength near $93,000 underscores investors’ willingness to embrace risk where liquidity and narrative align, feeding back into flows for COIN and trading‑oriented financials like IBKR.

For positioning into the open, favor selective exposure to defense, energy services, and semi‑cap equipment, balanced against profit‑taking risk in mega‑cap software and idiosyncratic insurers. Use COST mid‑week and Nvidia’s CES narrative to refine weights inside consumer and technology as the week’s catalysts unfold.