S&P 500 Ends Week Lower as Fed Chair Questions Linger
Broad market index slips 0.06% Friday to close at 6,940 amid Trump comments on Fed leadership. Banks and chips extend gains despite weekly decline.
Markets ended the week on an uncertain note.
The S&P 500 slipped 0.06% Friday to close at 6,940.01, capping a losing week despite Thursday's broad rally. The Nasdaq Composite edged down 0.06% to settle at 23,515.39, while the Dow Jones Industrial Average fell 83 points, or 0.17%, to finish at 49,359.33.
All three indexes posted modest weekly declines after hitting their session lows following President Trump's remarks about Fed chair succession. The president indicated he wants to keep Kevin Hassett at the White House rather than nominate him to replace Jerome Powell—a comment that markets interpreted as boosting the odds for a more hawkish alternative.
What Worked This Week
Semiconductors remained the standout performers. TSMC's blowout Q4 earnings Thursday validated the AI infrastructure buildout, sending chip stocks rallying for a second consecutive session.
The Philadelphia Semiconductor Index gained 2.3% for the week despite Friday's broader market weakness. Nvidia added 3.1% over five days, Applied Materials jumped 7.8%, and ASML extended its run to new all-time highs.
Bank earnings also delivered. Goldman Sachs raised its dividend after posting strong M&A results. Morgan Stanley hit record EPS on wealth management strength. BlackRock crossed $14 trillion in assets—a first for any manager.
The financial sector rose 1.8% for the week, outperforming every other S&P 500 group.
The Small-Cap Story
The Russell 2000 continues to diverge from large caps in a way that's worth watching.
Small caps have climbed more than 8% in 2026, versus 1.5% for the S&P 500. That's a meaningful rotation after years of underperformance during the mega-cap tech rally.
The Russell benefits from several factors: domestic revenue exposure that insulates it from tariff concerns, higher leverage to economic growth, and valuations that look more attractive after being left behind during the AI boom.
Whether this rotation has legs depends on the economic outlook. Small caps typically outperform when growth accelerates and credit conditions stay loose. The regional bank earnings this week—particularly PNC's strong results—suggest that conditions remain supportive.
What's Driving Volatility
The Fed chair uncertainty created the week's biggest headwind.
Trump's comments Friday weren't a formal announcement, but they shifted expectations enough to move bond yields and equity valuations. A Warsh-led Fed would likely mean fewer rate cuts than markets had priced under a potential Hassett nomination.
That matters for growth stocks in particular. The Nasdaq's underperformance relative to the Dow this week reflects sensitivity to rate expectations—higher discount rates hurt long-duration equities more than dividend-paying value stocks.
The Fed's blackout period begins Saturday, so there won't be any official commentary before the January 27-28 FOMC meeting. Markets expect no rate change and will focus on forward guidance language for signals about the June meeting.
Looking Ahead
Earnings season continues next week with major tech names on deck. Netflix reports Tuesday, followed by Johnson & Johnson, Procter & Gamble, and 3M on Wednesday.
The real action picks up the following week when Microsoft, Meta, Apple, Amazon, and Alphabet all release results. Those five companies represent roughly 25% of the S&P 500 by weight—their guidance will set the tone for first-half performance.
Economic data is relatively light. January PMI readings Friday will provide the first read on business activity in the new year. Housing starts and existing home sales data could move rate-sensitive sectors.
The technical setup remains constructive despite this week's pause. The S&P 500 sits within 1% of its all-time high, the 50-day moving average is rising, and breadth indicators show participation beyond the mega-caps.
That's an environment where corrections tend to be shallow and dips get bought. Unless something changes the fundamental picture—an inflation surprise, earnings disappointments, or policy shock—the path of least resistance stays higher.