Wall Street Daily (January 22): Strong rebound in US stocks, rapid recovery in market sentiment; small-cap stocks outperformed large-caps for the 13th consecutive day, China-related stocks strengthened / Energy sector led gains

[Summary] US stocks rebounded strongly on Wednesday, with the S&P 500 up 1.16%, Nasdaq up 1.18%, Dow Jones up 1.21%, and the Russell 2000 small-cap index surged 2.00% to a new all-time high. Trump announced at the Davos Forum that an agreement framework had been reached with NATO regarding Greenland and withdrew tariff threats against eight European countries, significantly easing concerns over escalating trade tensions. Small-cap stocks outperformed large-cap stocks for the 13th consecutive trading day, while the energy sector led gains. Sentiment also improved as the VIX plummeted 15.88% in a single day to 16.90. In major asset classes, Bitcoin rose 1.16%, gold increased by 1.38%, crude oil climbed 1.93%, and the US Dollar Index edged up 0.23%.

I. Major Events

Trump withdraws European tariff threat, announces 'framework agreement' on Greenland

Trump spoke at the World Economic Forum in Davos, stating that he had reached an agreement with NATO Secretary General Rutte on the 'future framework agreement' for Greenland and withdrew the planned 10% tariff on eight countries set to take effect on February 1. Trump also emphasized that he would 'not use force' to acquire Greenland. The Danish Foreign Minister welcomed this shift, easing short-term tensions between the US and Europe. Following the announcement, market risk appetite quickly rebounded, lifting US stocks mid-session, while the VIX also saw a significant decline.

Netflix earnings beat expectations but shares fall, Warner bid draws attention

Netflix reported Q4 results, with EPS at $0.56 beating expectations and revenue at $12.05 billion slightly above market forecasts. However, the company announced a suspension of its stock buyback program, citing a desire to accumulate cash for a potential bid on Warner Bros Discovery, while its Q1 guidance fell short of expectations. The company's 2026 full-year revenue guidance came in at a lower-than-expected $50.7 billion. The suspension of buybacks and adjustments to content spending plans have raised investor concerns about cash flow and profit pacing, causing Netflix shares to close down 2.18%.

Baidu's Ernie AI monthly active users surpass 200 million, boosting Chinese stocks

The news that Baidu’s AI assistant Ernie surpassed 200 million monthly active users acted as a key catalyst for Chinese stocks that day. The market also focused on the IPO expectations of Kunlunxin AI chips, as well as Baidu's cooperation plans for autonomous taxi services with Uber/Lyft. With these multiple factors combined, Baidu's share price surged by 8.17%, driving up other Chinese stocks like Bilibili and Alibaba. On the capital front, ARK Investment recently increased its stake; on the sell-side, Jefferies raised Baidu's target price to $181.

II. Major Trends

Small-cap stocks continue to outperform large caps

The Russell 2000 (IWM) surged 1.98%, hitting a record closing high, marking its 13th consecutive trading day outperforming the S&P 500. Over a two-week horizon, IWM has risen 6.92%, showing the best performance as capital continues rotating from large-cap to small- and mid-cap stocks.

Value style continues to dominate

Over a three-month period, SPYV rose 6.21%, significantly outperforming SPYG's 3.14%. Meanwhile, industrial stocks (DIA) gained 6.64% over three months, surpassing tech stocks (QQQ) which rose 3.74%. 'Old economy' related sectors and blue-chip stocks are still attracting more incremental capital.

Tech giants face short-term pressure

Despite an overall market rebound that day, the MAGS ETF still fell 1.49% over two weeks. Microsoft weakened after Nadella issued warnings about AI at Davos, and Netflix faced pressure due to its guidance and buyback arrangements, highlighting continued divergence within the M7 group.

III. Market Sentiment

Panic sentiment rapidly cooled. The VIX panic index plunged 15.88% in a single day to 16.90, sharply retreating from the previous day’s 20.09. Following Trump's withdrawal of tariff threats, the market swiftly corrected its earlier pricing of policy uncertainty, and short-term volatility expectations dropped accordingly. The CNN Fear & Greed Index recovered from 46 to 50, reaching the midpoint of the 'neutral' range. Sentiment is improving but has yet to enter a more pronounced 'greed' zone.

In terms of market breadth, the participation in this round of rebound has been relatively high: the Russell 2000 hit a record closing high, and the energy sector also reached a new historical high. Capital continued to flow into small and mid-cap stocks as well as cyclical sectors, and the rotation trend remains sustainable.

IV. Market Scan

1. Index ETFs

All four major index ETFs rose. The Russell 2000 ETF (IWM) led with a 1.98% gain, hitting a new record high; the Nasdaq 100 ETF (QQQ) rose 1.35%; the Dow ETF (DIA) gained 1.22%; and the S&P 500 ETF (SPY) was up 1.15%, lagging slightly behind. Small-cap stocks continued to show strength, with a clearer shift in capital style.

2. Industry Sectors

Energy (XLE) led with a 2.42% increase, reaching a new all-time high. Markets are focused on OPEC+ extending production cuts, while expectations for increased electricity demand driven by AI also supported sector sentiment. Materials (XLB) rose 2.18%, benefiting from easing trade tensions. Consumer Discretionary (XLY) climbed 1.91%, boosted by Tesla's rebound. Healthcare (XLV) gained 1.84%, Industrials (XLI) rose 1.73%, Technology (XLK) added 1.39%, and Communication Services (XLC) increased 1.02%.

Consumer Staples (XLP) was the laggard, rising only 0.10%. In an environment of improving risk appetite, defensive sectors typically underperform.

3. Seven Major Tech Stocks

The M7 continues to diverge. NVIDIA (NVDA) led with a 2.95% gain, as the semiconductor sector strengthened amid eased tariff concerns and positive earnings from Taiwan Semiconductor. Tesla (TSLA) rose 2.91%, mainly reflecting technical recovery after a sharp decline. Microsoft (MSFT) fell 2.29% after CEO Nadella issued a warning about AI at Davos, and Rothschild lowered its price target to $450. Netflix (NFLX) dropped 2.18%, weighed down by weak guidance and the suspension of its stock buyback program.

4. Chinese概念股

Chinese stocks performed strongly overall but showed clear divergence. Baidu (BIDU) surged 8.17% to lead, driven by Ernie AI surpassing 200 million monthly active users, coupled with Kunlunxin IPO expectations and cooperation plans with Uber/Lyft. Bilibili (BILI) rose 5.65%, recovering after a pullback the previous day. Alibaba (BABA) gained 3.87%, and JD.com (JD) rose 2.43%, with e-commerce leaders moving higher in tandem.

Meanwhile, NetEase (NTES) fell 4.07%, and Futu (FUTU) dropped 2.74%, moving lower against the broader sector's positive sentiment.

5. Cryptocurrencies and related stocks

Bitcoin's latest price approached $90,500, rising 1.16%. Amid easing tariff concerns and improved risk appetite, crypto assets followed the rebound. MicroStrategy (MSTR) rose 2.23% in tandem. However, mining stock Riot (RIOT) fell 4.70% against the trend, indicating inconsistent movement within the sector.

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