(TheStreet) - Jay Woods of Freedom Capital Markets explains why tech is digesting gains after years of outperformance and highlights the sectors smart money is rotating into right now.
Key Points
- Market rotation favors staples, industrials, and small caps while tech shows weakness and volatility.
- Key earnings, CPI, and jobs reports are expected to influence near-term market direction.
- “Boring is back”—safe sectors like staples and healthcare are currently recommended for investors.
Transcript:
Caroline Woods
After a volatile week for stocks and crypto, all eyes are on what comes next. Joining us now to preview the week ahead is Jay Woods, chief market strategist at Freedom Capital Markets. Jay great to have you here at the desk.
Jay Woods
Great to be back.
Caroline Woods
All right. So before we take a look at the week ahead, let’s talk about the week that was we saw Total Tech wreck software meltdown. We saw Bitcoin down to 60 K. It has since rebounded. We had the Dow hitting 50,000 an all time high. Is that healthy market rotation or is it maybe the start of something bigger breaking.
Jay Woods
Great to be back.
Caroline Woods
All right. So before we take a look at the week ahead, let’s talk about the week that was we saw Total Tech wreck software meltdown. We saw Bitcoin down to 60 K. It has since rebounded. We had the Dow hitting 50,000 an all time high. Is that healthy market rotation or is it maybe the start of something bigger breaking.
Jay Woods
Yeah we’re getting some mixed signals. So you have to kind of break it down. You have 17% of the S&P 500 making new highs, 3% making new lows. But in that 3% are those big software names, some of those tech names that have a lot of weight on the market. Then you have all those crypto related assets and those crypto related stocks that, you know, really took it on the chin.
Jay Woods
So the market breadth overall very healthy. But when you have those big headline stocks getting hit and not allowing that market, the rally S&P was down 0.01% last last week. But the Dow made new highs. You have to look under the hood. And where’s the leadership. And at staples industrials energy and small caps. Not a bad thing. But the tide is not lifting all boats.
Jay Woods
It’s rotating and rotating in the names that are late cycle bull market leaders. And the concern is is this early cycle bull market or it’s just a quick change. And then we’ll refresh the tech side in the coming weeks or months.
Caroline Woods
Well what’s your call. Well late cycle or is tech going to play catch up.
Jay Woods
I think tech will play catch up. We’ll have some relief rallies as we tape this. We’re getting a relief rally in some of those software names that have been beaten down. But we’ve seen cycles like this over time over the last 25 years. It’s happened twice around 2004 and then 2000, 13, 14, after two, three big years of double digit gains in the index, we had a year where we were only up marginally less than 5%, 1 to 5% in oh five and again in, for 18 to sorry, 14 to 15.
Jay Woods
So to me, what we’re doing is digesting gains, rotating into sectors that won’t have that power to really give us big gains as an index. But if you’re a good manager of your asset, you’re rotating into staples right now. You’re capitalizing on good gains. Well, technology gets its legs under it again before we go, hopefully higher.
Caroline Woods
So we should level set our expectations and expect 1 to 5% gains this year.
Jay Woods
Well, that’s what I said at the beginning. You know, when we did our.
Caroline Woods
End of last year.
Jay Woods
You said you.
Caroline Woods
Were boring as best. You were boring.
Jay Woods
At.
Caroline Woods
This rotation. We’re seeing.
Jay Woods
Well, the playbook is still in play five, six weeks into the year. Let’s see how it continues to go. But right now we’re seeing good growth on the earnings front. Look at look at stocks like meta. Great earnings didn’t didn’t really go much higher than you know up 10% feeding it back. We’re seeing Google great earnings didn’t make new highs Microsoft wasn’t too bad.
Jay Woods
They focused on the spend Amazon the same. So those big names that have lettuce have been growing. But people are focused on other things. And they think AI is going to capitalize capitalized AI. And a lot of those software names, they’re in the penalty box right now, and you’re going to see winners and losers. And I think we’re sifting through that right now to find out where those winners may be.
Jay Woods
But in the meantime we’re going to materials very boring. We’re going to some rich Simon property group. Great name. Good dividend making new highs. But it’s not going to make headlines here or make waves when you’re looking at the overall market okay.
Caroline Woods
So let’s talk about the week ahead. We have quite a few names on tap for earnings made seven obviously mostly out of the way. We still have Nvidia to come back to. But this week we have names like Cisco Legacy Tech. We have staples like Coca-Cola. We have Robinhood Software, stocks like Datadog. How could earnings impact the narrative this week.
Caroline Woods
What’s going to move markets most.
Jay Woods
Yeah I think you have to break it down. Sector to sector. You mentioned Cisco the old giant in the Dow. Still if it breaks above 85 it’s just on the precipice. We’re talking all time highs a full reversal back to when the dot.com peak when that was the darling stock. That was the magnificent stock before we had an acronym for those.
Jay Woods
So Cisco has been that silent assassin. Just keeps going higher and slowly trying along. It could get momentum with a positive earnings as people realize, oh my god, yeah, I missed this one. It’s still not too late to get into it. So you have Cisco on the technology front. As far as software stocks, you have three in that iGTV that ITV is a software ETF that has been crushed down 30% over the last 6 to 8 weeks.
Jay Woods
Getting a little bit of a relief rally. Well, that relief could get a little stronger when you have unity software down over 50% from its recent peaks. Day two dogs and, app love, and two names that have been really beaten down. If they report and we get some guidance that says, okay, maybe the software selloff has been a little overdone, they could help lift the rest of the sector, the two that have been really hurting them, Oracle and Salesforce.
Jay Woods
Salesforce 52 week low, the only down stock that made a new low last week. And then you look at Oracle. It’s just been getting destroyed getting a relief rally as we tape this. I still need to see a little more out of Oracle. Get us back to that 50 day moving average. 200 day moving average would be really nice.
Jay Woods
Before I believe that the all clear is there, I still think they have some, issues going forward.
Caroline Woods
I’m curious, at what point does the tech weakness stop being rotation into other sectors and start becoming a bigger problem?
Jay Woods
Yeah, well, if we can see like I think Microsoft is the bellwether when you look at that, Microsoft took it on the chin. They feel gaps going back to last April not at a 52 week low. 395 a very key level on watching there. But it’s held and it’s starting to rally. What you need to see is some consolidation.
Jay Woods
The one stock that has a reported Nvidia. That stock has gone sideways now for the better part of six months. It’s going around this 175 to 190 level. And it’s been holding can earnings break it out. And we take another leg higher. We saw Palantir similar had great earnings. And guess what. Like meta. It kept up after earnings and then faded.
Jay Woods
And both of those stocks broke the 200 day moving average. So I use the 200 day moving average as a barometer of health. And right now that sector is not healthy. So what we need to do is he stabilization from a price action standpoint. Another good quarter with a good guide where we can say, all right, this AI narrative that it’s 80 itself and cannibalizing is is a little overdone.
Jay Woods
And then we get back to maybe a quick bounce and then slow and steady growth. And that will take time.
Caroline Woods
Okay. We also have CPI and a delayed jobs report this week a little bit later this week. How could that impact the rotation trade. And does this market want good news or does this market one bad.
Jay Woods
That’s a great question. I don’t know what we want. What we want. We always want good news. But does it mean the market’s going to react that way. Let’s let’s break it down. We talk jobs. That was supposed to be released last week. Because of the slight delay passing the budget, it was delayed until Wednesday. Jobs, unemployment, 4.4%.
Jay Woods
Let’s see if that holds steady. When we talk about jobs, we also then talk about the other part of the dual mandate inflation. No better indication of inflation than that CPI. That’s the one number that causes more volatility than any other down here. They’re looking for it to decrease from 2.7 to 2.5%. I found that a little surprising.
Jay Woods
But we’ve avoided and navigated the tariffs. Inflation looks like it could be coming down if we get that 2.5 estimated. Number. I think that would bode well for the market. But then it throws us into the conundrum. Well, why would the fed have to cut rates again? Everything is going well. And then we talk about the new fed leader and how that goes.
Jay Woods
So there’s a lot of drama from the economic front. And it will start to kick off once we get that jobs and CPI. Because we don’t care what Powell has to say, we want to care. Well we’ll worst get you know, put into office. And how can he justify cutting rates if things are running at a very cool level on both sides of the dual mandate?
Caroline Woods
So if you had to calm nervous investors with just a sentence or two right now, what would you say?
Jay Woods
Let’s focus on earnings and those stocks that have not participated over the last few years. Yeah, rotational trade is real. So you look for something a little safer. Stocks in the health care sector. Merck, Amgen, Pfizer. Yes, Pfizer I, I I’ve hated this stock for years, but they’re safer. They pay a nice dividend. And we’re starting to see people rotate into those names.
Jay Woods
You said boring is back. I agree, some of the reach of the beaten down Simon property doing all right, coming back. And then if you want to get a little more aggressive, some of the biotech names Biogen had a great quarter last quarter. When you buy these biotech stocks, you have to worry about that next drug.
Jay Woods
And they have something brewing on the Alzheimer’s front. They get approval for that. Then the stock could take off another 25, 30% quickly. But if we’re still in that trial phase, it’s still growing in the right direction. So I like Biogen as far as biotech go.
Caroline Woods
And also want to quickly ask you about Bitcoin because in your note, a few weeks ago, you said if Bitcoin breaks below 76 77,000, the next like lower 60,000, which it did hit, you were spot on there. Yeah. Is Bitcoin out of the danger zone. Now that it’s rebounded a bit.
Jay Woods
It’s no no Bitcoin. You have to watch that one carefully especially over the weekends because there’s less liquidity over the weekends it gets a lot more volatile 65,000 to 58,000, 50,000 to 200 week moving average. That has been a cool barometer for that to follow. It almost got there. Got to 60,000. So in the 60 to 65 range I would nibble.
Jay Woods
If you think you know this is going to come back, then yes, you can get a nice sharp rally to 75,000 and still be in the downtrend. I don’t think we’re out of the woods when it comes to that. I only look at bitcoin. Technically, I’m not smart enough or foolish enough to really do a deep dive into it.
Jay Woods
I focus on the equities related to it. Robin Hood, which reports later this week, that got beaten down pretty hard. Yet. Meanwhile the trading activity should be through the roof. So I think Robin Hood will give us an opportunity if we do get another leg lower in Bitcoin and Robin Hood gets, into the high 60s, mid 60s, I think it would be great opportunity for someone that’s missed that trade to get in for the long term.
THIS OR THAT: starts at 10:50
Caroline Woods
Okay. We’ll keep that one on our radar for earnings as well. Before I let you go, you know what it’s time for. You’ve done this before. Yes. Rapid fire game of this or that.
Jay Woods
No hedging no and no prep. So I have no idea what you’re about to throw out.
Caroline Woods
No, you never do. All right, let’s let’s go here. Dow 50 K momentum peak or just the beginning I.
Jay Woods
Think just the beginning.
Caroline Woods
The great rotation healthy off or a trap for bulls.
Jay Woods
It’s, healthy hand off. But it’s not going to help with this with the tech sector just now.
Caroline Woods
From here equal weight S&P or market cap weighted.
Jay Woods
Equal weight for the next 3 to 6.
Caroline Woods
Months. Small caps or mega caps.
Jay Woods
Small caps right now.
Caroline Woods
U.S. or international?
Jay Woods
International.
Caroline Woods
Bigger market move it mover this week jobs report or CPI.
Jay Woods
CPI.
Caroline Woods
February outlook bullish or bearish.
Jay Woods
Neutral that’s this bearish I guess.
Caroline Woods
Strategy right now protecting gains or chasing returns.
Jay Woods
Protecting gains.
Caroline Woods
Shifting to tech I reset or bubble.
Jay Woods
Reset.
Caroline Woods
Software oversold opportunity or trap.
Jay Woods
Oversold opportunity. But I don’t think we’re going to get the v that people are expecting.
Caroline Woods
I infrastructure hardware or software.
Jay Woods
Right now hardware.
Caroline Woods
So software stocks buy the dip or stay on the sidelines.
Jay Woods
I buy the dip but I traded it’s a tradable bounce.
Caroline Woods
Which trade has more upside right now. Tech or bitcoin tech.
Moving on to fed and macro. Rates higher for longer or cut sooner than expected.
Jay Woods
I think we’re going to get a cut sooner than expected given the transition.
Caroline Woods
Good news is bad news or bad news is bad news.
Jay Woods
Bad news is bad news.
Caroline Woods
Trading market or investing?
Caroline Woods
Volatility creating opportunities or mistakes?
Jay Woods
Both. But some opportunities in software right now.
Caroline Woods
Fear creating value or destroying it.
Jay Woods
Creating value.
Caroline Woods
What’s the one thing the market is underpricing this week?
Jay Woods
What are we underpricing we’re underpricing these staples. I still think they can go higher.
Caroline Woods
Okay. It’s a safer play for 2026. Staples or tech safer staples.
Better value right now Cisco or coca cola.
Jay Woods
Coca cola safe. Cisco though looks great. Breaking out and relatively to the tech peers. I like Cisco.
Caroline Woods
Momentum trade, Robinhood or Oracle which is popping today.
Jay Woods
Wow. Both of them are broken stocks I would go Robinhood over Oracle.
Caroline Woods
Investing style buy buy and hold S&P or selective stock picking.
Jay Woods
I’m always a buy and hold S&P.
Caroline Woods
Guy. Most misunderstood sector right now.
Jay Woods
Oh software we don’t know what are the winners or losers. We’re still still trying to find that.
Caroline Woods
Most dangerous narrative on Wall Street.
Jay Woods
Buy the dip. It always works that one day will not happen.
Caroline Woods
One chart every investor should be watching this week.
Jay Woods
S&P equal-weight breaking out to all time new highs. That just spells to the rotation. Slow, steady. Boring is back.
Caroline Woods
Jay woods always a pleasure. Thanks so much.
Jay Woods
Thank you.
By Rebecca Mezistrano
February 9, 2026
