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Santa Claus Rally on the Horizon: Three Stocks Positioned for Major Gains

MarketDash Editorial Team
11 hours ago
Markets finished last week on a strong note with consumer discretionary leading the way. As the traditional Santa Claus rally period approaches, three stocks across banking, semiconductors, and automation stand out with significant upside potential amid shifting sector dynamics and technical breakouts.

Market Momentum Builds Into Holiday Week

The reindeer are being prepped and the sleigh is getting polished. Stocks wrapped up last week with impressive strength that has bulls feeling optimistic heading into the holiday-shortened trading week. Consumer discretionary names powered higher, lifting the Nasdaq to a 0.48% weekly gain. The S&P 500 squeaked out a 0.10% advance, while the Dow Jones Industrial Average climbed 0.67%.

Trading schedules get a bit wonky this week, with markets closing early Wednesday for Christmas Eve and staying shuttered Thursday for Christmas Day. Then the real action potentially begins. The Santa Claus rally period officially kicks off with the final trading days of December, but based on recent price action, it looks like Santa might be arriving early this year.

Three Compelling Investment Opportunities

Regional Banking Play: Horizon Bancorp (HBNC) – 56% Upside Potential

The Setup

Horizon Bancorp Inc. (HBNC) operates as a regional bank holding company running Horizon Bank throughout the Midwest. The company delivers the full spectrum of commercial and retail banking services, along with wealth management and treasury solutions. For investors seeking exposure to community and regional banking with a customer-centric approach and deep local market knowledge, Horizon Bancorp offers an intriguing opportunity.

The most recent quarter delivered revenue of $70.43 million alongside earnings of $77.14 million. Valuation metrics look reasonable with a book value of 12.90. From a technical perspective, HBNC recently broke out from a saucer formation, a pattern that typically signals acceleration toward higher price levels.

What's Driving the Story

Horizon Bancorp is emerging from a major balance sheet transformation in 2025 looking significantly stronger than expected. The company executed strategic asset sales, completed a $98.6 million common stock offering, and issued $100 million in subordinated notes. This comprehensive overhaul fortified capital levels, enhanced earnings power, and positioned the institution for accelerated organic growth plus potential merger and acquisition opportunities across its core Midwestern markets.

The net interest margin expansion tells a compelling profitability story. Horizon achieved margin expansion for the eighth consecutive quarter, pushing above 4% by September 2025. This reflects smart liability management and effective asset repricing, creating a resilient earnings foundation that should perform well across various interest rate environments while supporting sustained shareholder value creation.

Commercial loan growth provides the fuel for Horizon's core banking momentum. Organic loan increases, including $117.2 million in Q2 2025 alone, demonstrate deepening relationships with businesses across diverse industries in their markets. This taps into regional economic revitalization while building a high-quality portfolio that generates recurring revenue in what remains a competitive lending landscape.

Credit quality gives Horizon Bancorp a defensive edge as economic cycles evolve. Maintaining minimal net charge-offs and stable asset quality metrics underscores disciplined underwriting and prudent risk management. This reinforces the company's reputation as a reliable community banking partner capable of navigating challenges while delivering consistent performance for both depositors and investors.

Analyst sentiment includes an Overweight rating from Stephens & Co and a Neutral rating from Piper Sandler.

Investment Approach (56% Return Potential)

The bullish case on HBNC holds above the $15.50-$16.00 zone. Upside targets sit at $28.00-$30.00, representing approximately 56% potential appreciation from current entry levels.

Semiconductor Onshoring Beneficiary: SkyWater Technology (SKYT) – 82% Upside Potential

The Setup

SkyWater Technology Inc. (SKYT) operates as a U.S.-based pure-play semiconductor foundry providing advanced development, manufacturing, and packaging services. The company specializes in technologies including radiation-hardened, mixed-signal, and MEMS integrated circuits. For investors wanting exposure to semiconductor fabrication with a focus on defense, aerospace, domestic innovation, and trusted supply chain solutions, SkyWater presents a compelling opportunity.

Last quarter brought $150.74 million in revenue along with $11.49 million in earnings. Valuation metrics look particularly attractive for a chip stock, with a P/E ratio of 6.28, Price-to-Sales of 2.28, and EV to EBITDA of 7.08. Technically, SKYT is consolidating within a rare diamond formation. These patterns pack serious punch and can lead to substantial rallies when the upper trendline gets breached to the upside.

What's Driving the Story

SkyWater Technology is positioning itself as a key player in U.S. semiconductor onshoring initiatives. The company leverages its DOD Trusted foundry status to secure critical roles in aerospace, defense, and advanced compute markets. The strategic acquisition of Fab 25 in Texas combined with proposed CHIPS Act funding up to $16 million signals transformative expansion of domestic production capacity. This positions SkyWater to meet escalating demand for secure, domestically-produced chips amid growing global supply chain resilience priorities.

Financial performance has been breaking records and highlighting an accelerating growth trajectory. Q3 2025 revenue reached $150.7 million, driven by higher-than-expected contributions from the new Texas facility and robust wafer services. This momentum, paired with strong gross margins from advanced technology platforms, creates a compelling narrative of scaling operations and transitioning toward sustained profitability in a high-demand specialty foundry landscape.

Leadership in quantum computing innovations unlocks vast future potential. Multi-million-dollar collaborations, including partnerships with QuamCore for Single Flux Quantum devices and ongoing engagements in hybrid quantum-classical systems, establish SkyWater at the forefront of scalable quantum technologies. These efforts tap into emerging markets that could fundamentally redefine computing performance and drive premium revenue streams over the coming decade.

Government incentives and defense alignments provide SkyWater with a fortified competitive moat and long-term revenue visibility. As a Category 1A Trusted Supplier participating in DOD programs and benefiting from CHIPS Act support for facility modernization, the company is ideally positioned to capture value from national security initiatives and policy-driven investments in domestic microelectronics. This fosters resilience against geopolitical risks and cyclical downturns that typically plague the semiconductor industry.

Analyst ratings include Buy from TD Cowen, Overweight from Piper Sandler, and Buy from Needham.

Investment Approach (82% Return Potential)

The bullish thesis on SKYT remains intact above $13.50-$14.00. Upside targets range from $30.00-$32.00, representing roughly 82% potential appreciation from entry points.

Automation Leader: UiPath (PATH) – 62% Upside Potential

The Setup

UiPath Inc. (PATH) leads the enterprise automation software space, providing an end-to-end platform for robotic process automation and AI-driven agentic automation. The platform enables organizations to automate repetitive tasks and enhance productivity across operations. For investors seeking exposure to the rapidly expanding automation and artificial intelligence sector with innovative, scalable business process solutions, UiPath offers meaningful growth potential.

The last quarterly report showed revenue of $411.11 million with earnings of $85.17 million. Valuation runs a bit steep, with a P/E of 38.47, Price-to-Sales of 5.68, and EV to EBITDA of 289.61. From a charting perspective, PATH is seeking resolution from its broadening wedge formation. These patterns can lead to explosive upside moves when they break in the right direction.

What's Driving the Story

UiPath is transforming enterprise automation with its agentic AI platform. The company achieved a landmark first GAAP-profitable quarter in Q3 fiscal 2026 while revenue surged 16% year-over-year to $411 million. This breakthrough profitability, coupled with accelerating adoption of AI-powered agents, positions UiPath as a frontrunner in addressing complex workflows that traditional RPA couldn't handle. The platform unlocks massive efficiency gains for enterprises navigating the AI transformation.

Annual recurring revenue growth fuels the scalable business model, with ARR reaching $1.782 billion, representing an 11% increase. This is supported by a 107% dollar-based net retention rate as customers expand usage into agentic automation. The recurring revenue flywheel, enhanced by tools like Agent Builder and Maestro orchestration, creates a sticky ecosystem that drives predictable expansion amid rising demand for intelligent process automation.

Strategic AI integrations and partnerships amplify market momentum. Deepened collaborations with Microsoft for Copilot interoperability and Veeva for AI-driven quality management accelerate deployment of agentic solutions across industries like healthcare and insurance. These partnerships generate real-world savings, with one client projecting $32 million in value over three years, while establishing UiPath as an essential orchestrator in the agentic AI revolution.

Innovation in agentic automation differentiates UiPath in an increasingly crowded field. The platform enables autonomous agents to handle adaptive, end-to-end processes with features like visual canvases and natural language interfaces. As enterprises shift from pilots to production-scale deployments, UiPath's unified platform combining robots, AI agents, and human collaboration captures value from the projected explosion in agentic workflows, setting the stage for outsized growth in 2026.

Analyst ratings include Sector Perform from RBC Capital, Equal-Weight from Morgan Stanley, and Neutral from DA Davidson.

Investment Approach (62% Return Potential)

The bullish stance on PATH holds above $13.50-$14.00. Upside targets sit at $26.00-$27.00, representing approximately 62% potential appreciation from entry levels.

Major Market Catalysts This Week

Supreme Court Tariff Ruling Creates Legal Uncertainty

The U.S. Supreme Court has a major decision coming that could significantly shake up financial markets. The ruling concerns President Trump's use of the International Emergency Economic Powers Act to impose broad tariffs across numerous countries.

Current expectations point to a ruling in early 2026. If the court rules against the administration, it might invalidate tariffs on imports from many countries. This could potentially trigger refunds of $168-200 billion already collected, which would boost importer cash flows and ease supply chain pressures. However, it would also create fiscal uncertainty and possible market volatility from disrupted trade policies.

On the flip side, if the court upholds the tariffs, higher import costs would persist. This would support domestic industries but risk inflationary pressures and potential retaliatory measures from trading partners abroad. Markets remain on edge, with contingency plans reportedly under discussion for alternative tariff authorities if current ones get struck down. This represents a significant wild card for markets right now.

Understanding the Santa Claus Rally

Let's clear up some misconceptions about the Santa Claus rally period that begins this week. This phenomenon refers to a seasonal tendency for stock markets to rise during the last five trading days of December and the first two trading days of January. That spans seven trading sessions around the year-end holidays, with markets typically closed on Christmas and New Year's Day.

Yale Hirsch coined the term in the 1972 Stock Trader's Almanac. Since 1950, this period has historically delivered positive returns for the S&P 500 about 76-80% of the time, with an average gain around 1.3%.

Several factors contribute to this pattern. Holiday optimism plays a role, along with lower trading volumes as institutional investors take vacation. Year-end tax-loss harvesting gets followed by reinvestments, and there's often anticipation of the January effect. That said, the Santa Claus rally doesn't occur every year, and past performance offers no guarantees about future results. Markets close early Wednesday this week and stay fully closed Thursday, then the traditional rally period begins.

Sector Dynamics and Industry Strength

There's considerable congestion happening at the sector level since the start of the fourth quarter. Given that major indices have basically gone nowhere for three months, this shouldn't come as a surprise.

Healthcare (XLV) continues leading the pack, followed by financials (XLF) and basic materials (XLB). Consumer discretionary (XLY) showed a notable pop last week, which sends a bullish signal.

At the bottom, we still find more defensively oriented sectors like real estate (XLRE), utilities (XLU), and energy (XLE). The market doesn't appear particularly concerned with inflation right now, which opens the door for more growth-oriented leadership to take hold.

Looking at relative performance across different timeframes reveals shifting leadership patterns. Over one week, consumer discretionary has led. Over three weeks, financials have taken the top spot. Over 13 weeks, healthcare maintains leadership. And over 26 weeks, technology has been the strongest sector. These growth signals appear to be building.

Are Regional Banks Making a Comeback?

Some incredible price action has been unfolding in the financials sector. Numerous big banks have broken out to new all-time highs. Some institutions like Bank of America have finally recovered all their losses from the Global Financial Crisis.

But something even more interesting is happening beneath the surface with regional banks. The steepening yield curve comes into play here, as regional banks operate more traditional lending businesses compared to the biggest money center banks.

Over the past few years, regional banks (KRE) have underperformed the broader financial sector (XLF). But now a higher-low has formed on the ratio. If it breaks above the downward sloping trendline, we could be entering a period where regional banks outperform within the broader financial sector. This would be a significant shift in market dynamics worth monitoring closely.

Technology Sector Showing Cracks

The market's most important sector, technology (XLK), has been lagging over the past couple weeks. Without tech's participation, and most importantly its outperformance, markets are going to remain stuck in a challenging environment for making money in stocks.

This makes it an opportune time to examine the ratio between the tech sector (XLK) and the S&P 500 (SPY). A clear uptrend has been in effect for years. The ratio keeps making higher-highs and higher-lows. If you've been overweight technology, you've outperformed the broader market.

The ratio broke out from a wedge formation back in September and has since retraced to retest former resistance turned support. If this level holds, then technology has a realistic shot to resume outperformance. However, if we're witnessing a false breakout, then risks are starting to rise at the index level. This remains a critical chart to watch in the coming weeks.

Inflation Remains Under Control

We have a divided Federal Reserve at the moment that can't seem to make up its mind about whether unemployment or inflation presents the bigger risk. The bond market has a clear answer they should pay attention to.

Consider the ratio between Treasury Inflation Protected Securities (TIP) and 7-10 Year Treasuries (IEF). This tells us exactly what the bond market thinks about inflation and whether it represents a rising risk at the moment.

The ratio hasn't hit a new high in years. If anything, it's been consolidating within a multi-year triangle formation, which warns that inflation could eventually return as a concern. But it's simply not a dangerous macro factor at the moment. This leaves the door wide open for more rate cuts in 2026.

The Verdict

Inflation's containment has much to do with crude oil prices. Oil looks to be breaking key technical support levels, and that's going to keep a lid on inflation until proven otherwise. This provides a clear pathway for interest rates to drop further.

If anything, the bigger risk would be the Fed not cutting rates soon enough to meet the market's demands. The yield curve is steepening significantly and pricing in economic growth. At some point, inflation will become a major problem again, but we're simply not at that point in time yet. The macro backdrop still favors growth assets over defensive positioning.

Cryptocurrency Update

Ethereum has shown some noteworthy price action over the past couple weeks. Prices completed what could be another lower-high after getting rejected once again at the 3200-3300 resistance zone.

But as prices dropped again, they found support in the 2600-2800 zone and are attempting to complete another higher-low. The corrective downtrend remains intact ever since Ethereum topped out in August, but this could represent the first step in bulls regaining momentum.

Right now, Ethereum sits in a neutral zone above support at 2600-2800 and below resistance at 3200-3300. If resistance breaks, a rally up to 3800-3900 could follow. If support breaks, a drop to 2100-2200 becomes likely. The best approach is waiting until it breaks decisively in one direction or another before taking significant positions.

Back to Stock Market News

Santa Claus Rally on the Horizon: Three Stocks Positioned for Major Gains

MarketDash Editorial Team
11 hours ago
Markets finished last week on a strong note with consumer discretionary leading the way. As the traditional Santa Claus rally period approaches, three stocks across banking, semiconductors, and automation stand out with significant upside potential amid shifting sector dynamics and technical breakouts.

Market Momentum Builds Into Holiday Week

The reindeer are being prepped and the sleigh is getting polished. Stocks wrapped up last week with impressive strength that has bulls feeling optimistic heading into the holiday-shortened trading week. Consumer discretionary names powered higher, lifting the Nasdaq to a 0.48% weekly gain. The S&P 500 squeaked out a 0.10% advance, while the Dow Jones Industrial Average climbed 0.67%.

Trading schedules get a bit wonky this week, with markets closing early Wednesday for Christmas Eve and staying shuttered Thursday for Christmas Day. Then the real action potentially begins. The Santa Claus rally period officially kicks off with the final trading days of December, but based on recent price action, it looks like Santa might be arriving early this year.

Three Compelling Investment Opportunities

Regional Banking Play: Horizon Bancorp (HBNC) – 56% Upside Potential

The Setup

Horizon Bancorp Inc. (HBNC) operates as a regional bank holding company running Horizon Bank throughout the Midwest. The company delivers the full spectrum of commercial and retail banking services, along with wealth management and treasury solutions. For investors seeking exposure to community and regional banking with a customer-centric approach and deep local market knowledge, Horizon Bancorp offers an intriguing opportunity.

The most recent quarter delivered revenue of $70.43 million alongside earnings of $77.14 million. Valuation metrics look reasonable with a book value of 12.90. From a technical perspective, HBNC recently broke out from a saucer formation, a pattern that typically signals acceleration toward higher price levels.

What's Driving the Story

Horizon Bancorp is emerging from a major balance sheet transformation in 2025 looking significantly stronger than expected. The company executed strategic asset sales, completed a $98.6 million common stock offering, and issued $100 million in subordinated notes. This comprehensive overhaul fortified capital levels, enhanced earnings power, and positioned the institution for accelerated organic growth plus potential merger and acquisition opportunities across its core Midwestern markets.

The net interest margin expansion tells a compelling profitability story. Horizon achieved margin expansion for the eighth consecutive quarter, pushing above 4% by September 2025. This reflects smart liability management and effective asset repricing, creating a resilient earnings foundation that should perform well across various interest rate environments while supporting sustained shareholder value creation.

Commercial loan growth provides the fuel for Horizon's core banking momentum. Organic loan increases, including $117.2 million in Q2 2025 alone, demonstrate deepening relationships with businesses across diverse industries in their markets. This taps into regional economic revitalization while building a high-quality portfolio that generates recurring revenue in what remains a competitive lending landscape.

Credit quality gives Horizon Bancorp a defensive edge as economic cycles evolve. Maintaining minimal net charge-offs and stable asset quality metrics underscores disciplined underwriting and prudent risk management. This reinforces the company's reputation as a reliable community banking partner capable of navigating challenges while delivering consistent performance for both depositors and investors.

Analyst sentiment includes an Overweight rating from Stephens & Co and a Neutral rating from Piper Sandler.

Investment Approach (56% Return Potential)

The bullish case on HBNC holds above the $15.50-$16.00 zone. Upside targets sit at $28.00-$30.00, representing approximately 56% potential appreciation from current entry levels.

Semiconductor Onshoring Beneficiary: SkyWater Technology (SKYT) – 82% Upside Potential

The Setup

SkyWater Technology Inc. (SKYT) operates as a U.S.-based pure-play semiconductor foundry providing advanced development, manufacturing, and packaging services. The company specializes in technologies including radiation-hardened, mixed-signal, and MEMS integrated circuits. For investors wanting exposure to semiconductor fabrication with a focus on defense, aerospace, domestic innovation, and trusted supply chain solutions, SkyWater presents a compelling opportunity.

Last quarter brought $150.74 million in revenue along with $11.49 million in earnings. Valuation metrics look particularly attractive for a chip stock, with a P/E ratio of 6.28, Price-to-Sales of 2.28, and EV to EBITDA of 7.08. Technically, SKYT is consolidating within a rare diamond formation. These patterns pack serious punch and can lead to substantial rallies when the upper trendline gets breached to the upside.

What's Driving the Story

SkyWater Technology is positioning itself as a key player in U.S. semiconductor onshoring initiatives. The company leverages its DOD Trusted foundry status to secure critical roles in aerospace, defense, and advanced compute markets. The strategic acquisition of Fab 25 in Texas combined with proposed CHIPS Act funding up to $16 million signals transformative expansion of domestic production capacity. This positions SkyWater to meet escalating demand for secure, domestically-produced chips amid growing global supply chain resilience priorities.

Financial performance has been breaking records and highlighting an accelerating growth trajectory. Q3 2025 revenue reached $150.7 million, driven by higher-than-expected contributions from the new Texas facility and robust wafer services. This momentum, paired with strong gross margins from advanced technology platforms, creates a compelling narrative of scaling operations and transitioning toward sustained profitability in a high-demand specialty foundry landscape.

Leadership in quantum computing innovations unlocks vast future potential. Multi-million-dollar collaborations, including partnerships with QuamCore for Single Flux Quantum devices and ongoing engagements in hybrid quantum-classical systems, establish SkyWater at the forefront of scalable quantum technologies. These efforts tap into emerging markets that could fundamentally redefine computing performance and drive premium revenue streams over the coming decade.

Government incentives and defense alignments provide SkyWater with a fortified competitive moat and long-term revenue visibility. As a Category 1A Trusted Supplier participating in DOD programs and benefiting from CHIPS Act support for facility modernization, the company is ideally positioned to capture value from national security initiatives and policy-driven investments in domestic microelectronics. This fosters resilience against geopolitical risks and cyclical downturns that typically plague the semiconductor industry.

Analyst ratings include Buy from TD Cowen, Overweight from Piper Sandler, and Buy from Needham.

Investment Approach (82% Return Potential)

The bullish thesis on SKYT remains intact above $13.50-$14.00. Upside targets range from $30.00-$32.00, representing roughly 82% potential appreciation from entry points.

Automation Leader: UiPath (PATH) – 62% Upside Potential

The Setup

UiPath Inc. (PATH) leads the enterprise automation software space, providing an end-to-end platform for robotic process automation and AI-driven agentic automation. The platform enables organizations to automate repetitive tasks and enhance productivity across operations. For investors seeking exposure to the rapidly expanding automation and artificial intelligence sector with innovative, scalable business process solutions, UiPath offers meaningful growth potential.

The last quarterly report showed revenue of $411.11 million with earnings of $85.17 million. Valuation runs a bit steep, with a P/E of 38.47, Price-to-Sales of 5.68, and EV to EBITDA of 289.61. From a charting perspective, PATH is seeking resolution from its broadening wedge formation. These patterns can lead to explosive upside moves when they break in the right direction.

What's Driving the Story

UiPath is transforming enterprise automation with its agentic AI platform. The company achieved a landmark first GAAP-profitable quarter in Q3 fiscal 2026 while revenue surged 16% year-over-year to $411 million. This breakthrough profitability, coupled with accelerating adoption of AI-powered agents, positions UiPath as a frontrunner in addressing complex workflows that traditional RPA couldn't handle. The platform unlocks massive efficiency gains for enterprises navigating the AI transformation.

Annual recurring revenue growth fuels the scalable business model, with ARR reaching $1.782 billion, representing an 11% increase. This is supported by a 107% dollar-based net retention rate as customers expand usage into agentic automation. The recurring revenue flywheel, enhanced by tools like Agent Builder and Maestro orchestration, creates a sticky ecosystem that drives predictable expansion amid rising demand for intelligent process automation.

Strategic AI integrations and partnerships amplify market momentum. Deepened collaborations with Microsoft for Copilot interoperability and Veeva for AI-driven quality management accelerate deployment of agentic solutions across industries like healthcare and insurance. These partnerships generate real-world savings, with one client projecting $32 million in value over three years, while establishing UiPath as an essential orchestrator in the agentic AI revolution.

Innovation in agentic automation differentiates UiPath in an increasingly crowded field. The platform enables autonomous agents to handle adaptive, end-to-end processes with features like visual canvases and natural language interfaces. As enterprises shift from pilots to production-scale deployments, UiPath's unified platform combining robots, AI agents, and human collaboration captures value from the projected explosion in agentic workflows, setting the stage for outsized growth in 2026.

Analyst ratings include Sector Perform from RBC Capital, Equal-Weight from Morgan Stanley, and Neutral from DA Davidson.

Investment Approach (62% Return Potential)

The bullish stance on PATH holds above $13.50-$14.00. Upside targets sit at $26.00-$27.00, representing approximately 62% potential appreciation from entry levels.

Major Market Catalysts This Week

Supreme Court Tariff Ruling Creates Legal Uncertainty

The U.S. Supreme Court has a major decision coming that could significantly shake up financial markets. The ruling concerns President Trump's use of the International Emergency Economic Powers Act to impose broad tariffs across numerous countries.

Current expectations point to a ruling in early 2026. If the court rules against the administration, it might invalidate tariffs on imports from many countries. This could potentially trigger refunds of $168-200 billion already collected, which would boost importer cash flows and ease supply chain pressures. However, it would also create fiscal uncertainty and possible market volatility from disrupted trade policies.

On the flip side, if the court upholds the tariffs, higher import costs would persist. This would support domestic industries but risk inflationary pressures and potential retaliatory measures from trading partners abroad. Markets remain on edge, with contingency plans reportedly under discussion for alternative tariff authorities if current ones get struck down. This represents a significant wild card for markets right now.

Understanding the Santa Claus Rally

Let's clear up some misconceptions about the Santa Claus rally period that begins this week. This phenomenon refers to a seasonal tendency for stock markets to rise during the last five trading days of December and the first two trading days of January. That spans seven trading sessions around the year-end holidays, with markets typically closed on Christmas and New Year's Day.

Yale Hirsch coined the term in the 1972 Stock Trader's Almanac. Since 1950, this period has historically delivered positive returns for the S&P 500 about 76-80% of the time, with an average gain around 1.3%.

Several factors contribute to this pattern. Holiday optimism plays a role, along with lower trading volumes as institutional investors take vacation. Year-end tax-loss harvesting gets followed by reinvestments, and there's often anticipation of the January effect. That said, the Santa Claus rally doesn't occur every year, and past performance offers no guarantees about future results. Markets close early Wednesday this week and stay fully closed Thursday, then the traditional rally period begins.

Sector Dynamics and Industry Strength

There's considerable congestion happening at the sector level since the start of the fourth quarter. Given that major indices have basically gone nowhere for three months, this shouldn't come as a surprise.

Healthcare (XLV) continues leading the pack, followed by financials (XLF) and basic materials (XLB). Consumer discretionary (XLY) showed a notable pop last week, which sends a bullish signal.

At the bottom, we still find more defensively oriented sectors like real estate (XLRE), utilities (XLU), and energy (XLE). The market doesn't appear particularly concerned with inflation right now, which opens the door for more growth-oriented leadership to take hold.

Looking at relative performance across different timeframes reveals shifting leadership patterns. Over one week, consumer discretionary has led. Over three weeks, financials have taken the top spot. Over 13 weeks, healthcare maintains leadership. And over 26 weeks, technology has been the strongest sector. These growth signals appear to be building.

Are Regional Banks Making a Comeback?

Some incredible price action has been unfolding in the financials sector. Numerous big banks have broken out to new all-time highs. Some institutions like Bank of America have finally recovered all their losses from the Global Financial Crisis.

But something even more interesting is happening beneath the surface with regional banks. The steepening yield curve comes into play here, as regional banks operate more traditional lending businesses compared to the biggest money center banks.

Over the past few years, regional banks (KRE) have underperformed the broader financial sector (XLF). But now a higher-low has formed on the ratio. If it breaks above the downward sloping trendline, we could be entering a period where regional banks outperform within the broader financial sector. This would be a significant shift in market dynamics worth monitoring closely.

Technology Sector Showing Cracks

The market's most important sector, technology (XLK), has been lagging over the past couple weeks. Without tech's participation, and most importantly its outperformance, markets are going to remain stuck in a challenging environment for making money in stocks.

This makes it an opportune time to examine the ratio between the tech sector (XLK) and the S&P 500 (SPY). A clear uptrend has been in effect for years. The ratio keeps making higher-highs and higher-lows. If you've been overweight technology, you've outperformed the broader market.

The ratio broke out from a wedge formation back in September and has since retraced to retest former resistance turned support. If this level holds, then technology has a realistic shot to resume outperformance. However, if we're witnessing a false breakout, then risks are starting to rise at the index level. This remains a critical chart to watch in the coming weeks.

Inflation Remains Under Control

We have a divided Federal Reserve at the moment that can't seem to make up its mind about whether unemployment or inflation presents the bigger risk. The bond market has a clear answer they should pay attention to.

Consider the ratio between Treasury Inflation Protected Securities (TIP) and 7-10 Year Treasuries (IEF). This tells us exactly what the bond market thinks about inflation and whether it represents a rising risk at the moment.

The ratio hasn't hit a new high in years. If anything, it's been consolidating within a multi-year triangle formation, which warns that inflation could eventually return as a concern. But it's simply not a dangerous macro factor at the moment. This leaves the door wide open for more rate cuts in 2026.

The Verdict

Inflation's containment has much to do with crude oil prices. Oil looks to be breaking key technical support levels, and that's going to keep a lid on inflation until proven otherwise. This provides a clear pathway for interest rates to drop further.

If anything, the bigger risk would be the Fed not cutting rates soon enough to meet the market's demands. The yield curve is steepening significantly and pricing in economic growth. At some point, inflation will become a major problem again, but we're simply not at that point in time yet. The macro backdrop still favors growth assets over defensive positioning.

Cryptocurrency Update

Ethereum has shown some noteworthy price action over the past couple weeks. Prices completed what could be another lower-high after getting rejected once again at the 3200-3300 resistance zone.

But as prices dropped again, they found support in the 2600-2800 zone and are attempting to complete another higher-low. The corrective downtrend remains intact ever since Ethereum topped out in August, but this could represent the first step in bulls regaining momentum.

Right now, Ethereum sits in a neutral zone above support at 2600-2800 and below resistance at 3200-3300. If resistance breaks, a rally up to 3800-3900 could follow. If support breaks, a drop to 2100-2200 becomes likely. The best approach is waiting until it breaks decisively in one direction or another before taking significant positions.