Markets start year in green, will the bull run continue?

Key Concepts

• January Effect: The tendency for stock markets to rise in January.
• Market Rotation: Shifts in investment flows between different sectors or asset classes.
• Reflationary Trade: Investment strategy focused on assets that benefit from rising inflation, like commodities and financials.
• Global Diversification: Spreading investments across different countries and regions.
• Operational Leverage: Using fixed costs to amplify the effect of revenue changes on profitability.
• Semiconductor Equipment: Machinery used in the manufacturing of semiconductors.
• Mag 7: Refers to the seven largest technology companies (typically Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta).

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Market Performance & January Effect

The S&P 500 reached a new all-time high and is poised for a weekly gain, driven by recent positive US jobs data. Diana Avidor of Barometer Capital Management discussed the potential for continued market strength, referencing the “January Effect.” Historically, since 1950, when the S&P 500 has experienced positive returns in the first five trading days of January, it has averaged a 14% gain for the year with an 83% success rate. Avidor acknowledged this as a positive indicator, stating, “if we’re part of the 83% and not the remaining 17 then the first five days of the year have been quite excellent.”

Market Rotation & Sector Performance

A significant theme identified is a rotation occurring underneath the surface of the market, continuing a trend from 2025. This means investment flows are shifting between sectors. The Russell 2000 has outperformed the NASDAQ 100 by approximately 4% year-to-date. The equal-weight S&P 500 has also outperformed the capitalization-weighted S&P 500. This is reflected in market breadth, with 71% of S&P components and 70% of Russell components closing higher, while the NASDAQ 100 lagged.

This rotation signifies a move away from the “Mag 7” technology stocks and into sectors benefiting from a “reflationary” environment, including commodity-driven industries, financials, and healthcare. Avidor noted, “money is flowing away from uh the mag 7 let's say and uh and into a lot of other sectors including uh reflationary commoditydriven uh financials and healthcare that sort of thing.”

Canadian ETF Inflows & Global Diversification

Remarkably, there has been a substantial influx of capital into Canadian ETFs. Week-to-date inflows reached $5.3 billion, nearing the 2025 weekly high of $5.9 billion. This surge indicates a growing interest in global diversification, as the US has outperformed the rest of the world for several years, and 2025 saw the rest of the world, including Canada, begin to outperform the US. Avidor highlighted Canada’s appeal due to its abundance of commodities like gold and silver, which are currently in demand globally. She stated, “Canada has outperformed the US…and I think that just speaks to money, external money too, uh coming into Canada.”

Retail Sector – Aritzia Case Study

The retail sector, specifically Aritzia, was highlighted as a positive example. Aritzia has demonstrated strong performance, with revenue reaching $1 billion and a 43% increase as previously mentioned. The company’s expansion into the US, coupled with its successful e-commerce strategy, has driven significant growth. Key factors contributing to Aritzia’s success include margin expansion, operational leverage, and positive investor sentiment. Avidor emphasized the impact of “margin expansion, operation, operational leverage contributing to improved profit profitability.” The company’s ability to deliver fashionable products and maintain a strong brand image is also driving sales and profitability.

Semiconductor Sector & Stock Picks

Within the technology sector, Avidor identified Lamb Research as a preferred stock pick. Lamb Research is a semiconductor equipment manufacturer, producing essential components for memory chips. The demand for memory is consistently increasing, making Lamb Research a strategically positioned company. Additionally, Barometer Capital Management also holds Broadcom, a critical supplier of custom chips and networking components used in AI data centers, memory, and chips. This investment reflects a broader theme of focusing on companies supporting the growth of AI and data centers. Avidor explained, “This is the kind of stuff uh we keep on needing more of.”

Logical Connections

The discussion flowed logically from an overview of the market’s strong start to a deeper dive into underlying trends. The January Effect provided a starting point, leading to an analysis of market rotation and sector performance. The observation of capital flowing into Canadian ETFs then broadened the scope to global diversification. The Aritzia case study served as a concrete example of a successful company benefiting from the shifting market dynamics, and finally, the discussion of Lamb Research and Broadcom provided specific investment recommendations aligned with the identified trends.

Synthesis/Conclusion

The interview highlighted a cautiously optimistic outlook for the market, supported by historical data and current trends. The key takeaway is that while the “Mag 7” stocks have dominated in recent years, a significant market rotation is underway, favoring smaller-cap stocks, sectors benefiting from rising inflation, and international markets like Canada. Investors should consider diversifying their portfolios to capitalize on these emerging opportunities and focus on companies positioned to benefit from long-term trends like the growth of AI and data centers. The January Effect, while not a guarantee, provides a potentially positive signal for the year ahead.