Structural Shifts and Technical Signals: A Macro Strategist's View for January 2026

The market regime for 2026 is being driven by a powerful, if fragile, combination: solid economic growth and a Federal Reserve that is easing. This setup has already powered a significant rally, with the S&P 500 posting double-digit gains for three straight years. Goldman Sachs Research projects this trend will continue, forecasting a 12% total return for the S&P 500 in 2026. The engine for that return is expected to be earnings, with the firm projecting EPS to increase 12% in 2026. That growth is underpinned by a macro backdrop of 2.7% GDP growth and an anticipated two 25bp Fed cuts.

Yet this bullish narrative unfolds against a backdrop of elevated valuations that create a complex and potentially volatile environment. The S&P 500 currently trades at a forward price-to-earnings (P/E) ratio of 22x. That multiple is historically high, matching the peak reached during the 2021 market frenzy. It approaches the record 24x multiple seen in the dot-com bubble. This premium pricing means the market is being driven by expectations of perfection-strong revenue growth, widening margins, and a steady macro picture. As one analyst notes, when forward valuation multiples begin to rise sharply, it could be an indication that expectations are outpacing actual earnings growth. Under these conditions, even a good earnings report may disappoint if sentiment is not aligned with reality, increasing the risk of a valuation-driven pullback.

Adding to the complexity are unheralded structural shifts that can alter the market's plumbing. Every January, regulatory changes quietly go live that can reshape liquidity and volatility. For instance, U.S. equity markets are positioning to shift toward near 23×5 trading as exchanges seek approvals for extended sessions. This isn't just a calendar change; it means liquidity will no longer be constrained to traditional hours, potentially altering volatility patterns and execution dynamics. Professional traders who fail to update their assumptions for these new rules risk being caught off guard. In essence, the macro engine is running on solid fuel, but the high valuations and evolving structural rules mean the ride could get bumpy.

Market Structure: The Unseen Hand Shaping Liquidity

Beneath the headline news of market rallies and Fed policy, a quieter but more profound transformation is underway in the plumbing of financial markets. This is the shift from a centralized, transparent model to a fragmented, technology-driven landscape. The changes are structural, redefining how liquidity is found, priced, and executed across asset classes.

A key pillar of this evolution is the institutional embrace of hosted liquidity pools within Alternative Trading Systems (ATSs). These are private, invite-only trading rooms where broker-dealers segment order flow and control which counterparties participate. For the buy side, the appeal is straightforward: better execution and more direct engagement with market makers. As one global head of trading noted, the engagement with a market maker is easier to measure, and bilateral interactions can yield better prices. This trend is already material, with hosted pools accounting for a notable share of volume on major ATSs. The shift signals a move away from the traditional all-to-all, public order book toward more efficient, bilateral trading-a model that is now expanding beyond equities into fixed income, where market makers are beginning to stream executable prices directly to institutional order management systems.

This fragmentation is being amplified by a potential overhaul of the Order Protection Rule (OPR) under Reg NMS. The OPR currently mandates that trades be executed at the best price available across all markets. A proposed change could allow for more flexible execution, potentially enabling trades to occur at prices that are not the absolute best across all venues. The result would be a more fragmented but arguably more efficient landscape. It would give broker-dealers greater discretion to route orders to venues that offer the best overall execution package, including factors like speed and reduced market impact, rather than being forced into a rigid price hierarchy. This regulatory shift, coupled with the rise of hosted pools, is decentralizing trading and giving institutions more control over their liquidity journey.

Technological innovation is the fuel for this entire transformation. Artificial intelligence is beginning to disrupt the research function, where it can analyze vast datasets and uncover correlations far faster than human analysts. While its direct impact on trading desks remains limited for now, the improved research quality it enables could subtly shift the information advantage. More broadly, the push for efficiency is spurring innovation in areas like tokenization, which promises to streamline fixed-income settlement and create new, more liquid markets. Yet these gains come with new layers of risk. The same technology that enhances efficiency can also accelerate the spread of information and amplify volatility. The market structure of 2026 is being built on a foundation of hosted pools, regulatory flexibility, and AI-driven analysis. It is a system designed for speed and customization, but its complexity demands a new level of vigilance from all participants.

Technical Landscape: Navigating the Current Momentum

The macro and structural themes set the stage, but the immediate path for asset prices is being charted by technical momentum. For all the talk of a powerful growth engine, the technical picture across key markets suggests a period of consolidation and vulnerability to downside breaks.

The U.S. Dollar Index (DXY) is a prime example of a market in a bearish tug-of-war. The overall momentum is down, yet a critical support level at 98.74 is holding. This level is not just a number; it represents a key area where renewed buying pressure could emerge to halt the decline. A break below this point, however, would signal a loss of this crucial floor and could open the door to a deeper slide toward the next support at 98.49. In a market where sentiment is finely balanced, this technical setup adds a layer of uncertainty to the dollar's role in the global liquidity picture.

This bearish sentiment extends to the euro, where EUR/USD is firmly in a downtrend. The chart shows a clear bearish overall momentum, with a key pivot resistance at 1.1708. This level is the immediate hurdle; a failure to hold above it would likely accelerate the downward move toward the next support at 1.1643. The pattern is consistent across the major pairs, painting a picture of a broad-based dollar strength that is testing the resolve of other currencies.

On the equity front, the S&P 500 presents a more nuanced, but still cautious, technical view. Analysis from early January points to a bearish-to-neutral bias. The market is not in a clear uptrend, but it is also not showing the sharp breakdowns that would signal panic. The key is in the levels. The chart identifies specific support zones where a reversal could be triggered. For now, the market is navigating these levels, with any move below them potentially feeding into the broader narrative of valuation fragility. The technical setup here mirrors the macro: a market that has rallied on strong fundamentals but now faces a wall of high expectations and a need for flawless execution to push higher.

The bottom line is that technical analysis reveals a market in a state of transition. The structural shifts toward fragmented liquidity and the macro backdrop of elevated valuations create a foundation for volatility. The current technical patterns-dollar support, euro resistance, and a neutral S&P 500-show where that volatility is most likely to manifest. For traders and investors, the focus must be on these key levels, as a break in either direction could quickly alter the near-term trajectory.

Catalysts and Risks: What to Watch in the New Year

The bullish thesis for 2026 rests on a few key drivers, but its durability will be tested by a handful of forward-looking events. The primary catalysts are the pace of AI investment and the resurgence of corporate re-leveraging, both of which are central to Goldman Sachs's forecast for 12% earnings growth in 2026. The firm notes that AI investment is expected to increase even as overall capital expenditure growth decelerates. This divergence is critical; sustained corporate spending on AI is meant to fuel the productivity boost that underpins the earnings expansion. Any slowdown in this specific form of investment would directly challenge the fundamental engine of the rally.

At the same time, the market structure itself is undergoing a regulatory and technological overhaul that will solidify its new shape. The growth of hosted liquidity pools within Alternative Trading Systems is a prime example. While these private rooms offer efficiency gains for institutions, their expansion is intertwined with pending changes to market data rules and the potential redefinition of the Order Protection Rule. As noted, pending changes to market data via the SIP and regulatory flexibility could allow for more customized execution. The clarity-or lack thereof-on these rules in the coming months will determine whether the new structure reduces execution costs as promised or introduces new layers of complexity and cost for market participants.

The overarching risk, however, is a valuation correction if earnings growth fails to meet the elevated expectations already priced into the market. With the S&P 500 trading at a forward P/E of 22x, a multiple that matches the 2021 peak, the market is pricing in perfection. As one analysis warns, when forward valuation multiples begin to rise sharply, it could be an indication that expectations are outpacing actual earnings growth. Under these conditions, even a solid earnings report may disappoint if it doesn't exceed the high bar set by lofty multiples. The risk is not a collapse in fundamentals, but a re-rating driven by sentiment. This vulnerability is amplified by the record concentration of market capitalization, where a few large tech stocks have accounted for the bulk of the index's recent returns. Their continued strength is now a key dependency.

In essence, the year ahead is a test of execution. The macro and structural shifts provide the framework, but the market's path will be dictated by whether corporate investment delivers the promised earnings growth and whether the new, fragmented market structure can support that growth efficiently. Any stumble on either front could quickly deflate the high expectations that are now the market's baseline.