01/12/2026 ValuEngine Weekly Market Summary & Commentary

U.S. equity markets continued their constructive start to 2026, with broad participation across styles, sectors, and market capitalizations. While mega-cap technology continues to attract attention, recent performance data reinforces a theme we have been highlighting for several months — rotation toward value, cyclicals, and smaller capitalization stocks remains intact.

In the below tables we use major ETF’s as a proxy for some major indexes as well as each of the sector groups into which we divide the overall markets. Tracking these over time provides a more defined picture of the US markets than simply tracking major indexes. This is followed by notable individual stock movers over the past month, before presenting our full strategy outlook.

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Strategy Note:

Using State Street’s SPDR ETF universe as a microcosmic subset to take a quick look at year-to-date 2026 performance, the top performing mini-sector index ETFs thus far are Aerospace (XAR) and Metals & Mining (XME) at 14.3% and 12.9% respectively. XME gets our highest rating of 5 (Strong Buy). Meanwhile, Pharmaceuticals (XPH) and Utilities (XLU) are off to the lowest starts with price declines of about 0.4% thus far.

The rotation themes we noted as prevalent in the fourth quarter of 2025 are still present at the start of 2026. Although the S&P 500 Portfolio ETF (SPYM) is up 1.8%, the State Street SPDR S&P 500 Value ETF (SPYV) is up 2.5% while growth counterpart SPYG has risen just 1.1%. The differences in market cap size are even more dramatic. State Street SPDR S&P 400 Mid Cap Portfolio ETF (SPMD) is up 4.7% while State Street SPDR S&P 600 Small Cap Portfolio ETF gained 5.1%. Size matters, but in the past four months it has swung back to the smaller the better.

The relative under performance in the first six days of the trading year notwithstanding, ValuEngine’s ratings are unperturbed. The Technology and Health Care State Street Select Sector SPDR ETFs, XLK and XLV, respectively, still get our highest rating of 5.

Among all the 2025 outlooks we perused this week, we are particularly struck by the bearish persistence of investment legend Jeremy Grantham, co-founder of Boston-based Grantham, Mayo and Van Otterloo.  While reading a recent Barron’s interview, one quote took his pessimism to new extremes: “I would recommend zero exposure to the US, but if you have to own US stocks, own quality stocks.”

In GMO parlance, these are defined as companies with high, stable returns, consistent earnings and dividend growth, low debt, and a degree of monopoly power or price control. These are the factor guidelines in the stated objective of Grantham Mayo’s active ETF QLTY. QLTY and its holdings fit the same profile as three much larger U.S. equity quality factor ETFs: iShares MSCI USA Quality Factor ETF (QUAL), Invesco S&P 500 Quality ETF (SPHQ), and Fidelity Quality Factor ETF (FQAL). All are rated 3 (Hold) at the present time by ValuEngine.

To look at individual stocks in QLTY.  We used ETFdb, a TMX VettaFi product, as the source for QLTY’s holdings and found two stocks rated 5 (Strong Buy): Broadcom (AVGO) and Eli Lilly and Company (LLY). Ten additional holdings are rated 4 (Buy), including Lam Research (LRCX), Alphabet (GOOGL), and KLA Corporation (KLAC). Having roughly one-third of its holdings rated 4 or 5 approximately doubles the percentage of recommended stocks in our broader universe, positioning QLTY for potentially superior performance in the months ahead.