Navigating Market Risk Heading Into 2026 with Tyler Wood

Markets are sitting near record highs, but are investors overlooking key warning signs? Tyler Wood of the Chartered Market Technicians Association joins Andrew Wilkinson to break down Fed policy, sector rotation, AI enthusiasm, commodities, and the technical signals that could shape market risk and opportunity heading into 2026.

Summary – IBKR Podcasts Ep. 338

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Andrew Wilkinson 

Welcome everybody. I’d like to welcome back to the program Tyler Wood from the Chartered Market Technicians Association, or the CMT. Tyler, welcome. It’s December. How are you? 

Tyler Wood 

I am doing great, Andrew. Good to see you. Happy holidays. 

Andrew Wilkinson 

And happy holidays to you. Let’s start by a little discussion. From a 10,000-foot view, we’re hovering at record highs for stocks. Give us your sense of the overall health of the market. 

Tyler Wood 

Well, last time I checked, when markets are at all-time highs, that’s not a bad thing. Tends to happen in bull markets, not bear markets. And last Thursday, we broke above that 6,900. What everybody is aware of is the fragility of this market, so we couldn’t hold those highs. Friday was a selloff, and we came into the week understanding that there’s some weakness in the technology sector, which has been the leading group for most of this year. But we’re a thousand points higher than we were at the start of 2025 in the S&P 500, and that’s not something to look away from. 

Andrew Wilkinson 

How different does the stock market look today compared to a year ago? You say we’ve done a thousand points on the S&P, probably 20%. What does it look like in terms of leadership? 

Tyler Wood 

So coming into 2025, we certainly saw technology as a theme emerging, but we also saw a lot of concentration, narrow breadth. And so if I’m comparing mid-December to where we’re at in the beginning of January, and some of the fears about just how stretched and thin the leadership was, I don’t see that right now. We’ve had a broadening not just across all sectors of the market, but also across the technology sector itself. And we’re seeing broad-based participation up and down the cap scale, which is a very healthy sign. 

Andrew Wilkinson 

I was just going to come on to the dominance of AI. Isn’t this repricing of big tech somewhat healthy? 

Tyler Wood 

Yeah, great question. So we held a conference for global investors in Dubai about a month ago. And one of the discussions that really resounded to me was the idea of this AI bubble. And we lined up a number of CMT charter holders and really prominent investment managers and strategists, and they said, “Oh, there’s a bubble? Show me where it is. Like, I’m running towards it.” Because you can make your career in a bubble if you understand what you’re doing. So let’s break that down. The structural elements, right? Maybe what Dave Lundgren has referred to as the fundamentals bubble, meaning we’re still seeing earnings beats by companies like Nvidia. That’s a wonderful sign. We also know that the forensic accountants, the Michael Burrys out there, have noticed the circular financing—the same sort of elements that were present in the late 1990s with the dot-com bubble. 

So knowing that there is that kind of concentration, knowing that we have some circular financing happening, that’s not the trigger. That’s simply the ingredients for this bubble. And what the commentary from our conference several months ago was that most human beings tend to underestimate what technology can do in the long run, right? So the internet is still around. There are plenty of dot-com companies that went outta business in 2001. The internet has changed life as we know it. And so to understand that artificial intelligence and all of the expressions of what this AI revolution might do for our day-to-day life, for business practice, for efficiency—that is really hard for us to comprehend. But in the short run, we tend to overdo it. We get excited. 

But what you tend to see is that Wall Street analysts underestimate what these companies can do, and quarter after quarter, they’re beating estimates. That’s what we’re seeing right now. And finally, the analysts of Wall Street will start to price these securities so much higher that they can’t beat earnings estimates. And you’ll see this slew across the dominant names where we just have earnings misses quarter after quarter. And that’s sort of the fundamental downfall to what was a bubbly bull run. For us in the technical field, we’re waiting for a trigger. Even if we know that there is a bubble happening and this is not sustainable, you still have to participate on behalf of your clients or your firms. You can’t, because of your personal bias, decide to sell out of these things early. You wait for technical levels to be broken, for securities to start trading below their 50- and 200-period moving average, to break key levels. All of the traditional signs and triggers that we would use to know that indeed the selling is beginning. We’re not seeing that yet. 

Andrew Wilkinson 

Well, how does the technical analysis toolkit help us navigate a bubble if and why it happens? 

Tyler Wood 

So there are a couple of sides to this equation. One is you can spot when securities prices start to move parabolic. And there are tools like parabolic stop and reverse—PSAR is a tool that you can put on any chart of any security to start to see when things get extended to the upside or over-accelerating. That’s typically a time where it’s gonna struggle to make meaningful moves higher, continue to make those kinds of gains. Similarly, there is no better toolkit for risk management, right, to be objective, to remove your emotions from the decision, than looking at the information the market’s giving us. So when price breaks key levels, when you start to see trend conditions breaking down or moving lower, reversing into downtrends, those are all different tools that you can use to get out of a bubbly bull market when indeed the party has come to an end. So I love the analogy that many of the analysts and strategists use. You want to go to the party, you just want to keep an eye out for when the punch bowl is emptying out. When the only people who are left at the party can’t really dance anymore, it’s no longer fun, and the cops are gonna break this up pretty soon. You wanna leave before those cops arrive. And that’s the idea behind having objective levels for exits. 

Andrew Wilkinson 

Tyler, one question that I always know I’m gonna ask you whenever we speak is about the health of the small-cap sector. It’s like we had kids at school, and I’m obliged to ask you, how is Russell doing? 

Tyler Wood 

You know, let’s see. We’ve struggled to pass the third grade a couple of times, I think. But what I’m seeing right now on the Russell 2000 is a healthy breakout, retesting that breakout level in terms of price action. But the trend conditions in my work are very healthy, and we’re seeing momentum sort of test that neutral level, where when we see momentum resurging in the direction of the underlying trend, the price—that’s really the condition that all trend followers are looking for, to confirm that indeed this move has a sustainable characteristic. It’s very constructive. The other thing that I would note, Andrew, is it’s important to look at equal-weight versions even of the S&P 500 when we wanna take a look at how the average security is performing and not just the leading mega-cap technology, Mega Seven names. Looking at an equal-weight version of any of the indices that you track is important. When we see that heavyweight leadership start to struggle, it’s going to put pressure for any of the other securities in the index to hold up that cap-weighted performance. So I would encourage everybody to get under the hood. It’s not a stock market, it’s a market of stocks, and there’s a lot of opportunities out there. 

Andrew Wilkinson 

2026 potential red flags that you’re seeing right now. Any? 

Tyler Wood 

Well, you know, you didn’t say the Fed directly, but let’s just go there, because we got some employment numbers this morning. Today’s December 16th, and the data had lapsed as the government was shut down. And what we saw was a surprise to the upside in the unemployment numbers, and markets were kind of pricing in about a 4.4%. I think we came in at 4.6%. So unemployment rising. Well, what does that mean for the Fed and the scenario of our path for future rate cuts? Well, that’s their dual mandate. They want to keep unemployment low, and a rise in unemployment—so bad news can become good news in terms of the liquidity provisions from the central bank. The other piece of data that’s coming out this week, which we haven’t seen in a while, is CPI and inflation. And I think the—use whatever phrase you want—thread the needle, you know, the balancing act, the tightrope walk that Chairman Powell is doing. We are expecting that the Fed will have more instructive commentary for us once we have some inflation data to pair with this jobs number. The path of rate cuts, I think, next year is one of the factors folks are gonna need to keep in mind. So some of the smaller-cap names that are more financing-dependent—if we continue to see sharp moves higher in long bonds, that’s going to be a headwind for some of those more debt-dependent companies. 

Andrew Wilkinson 

What are your reflections on the commodity market at this point? Anything jumping out to you there? 

Tyler Wood 

You know, lumber’s still looking a little soft. We’ve had an incredible run in 2025 for precious metals. You know, I know we don’t make any investment recommendations on podcasts like this, but word to the wise: if everyone at the holiday dinner table is talking about, you know, melting their grandma’s old gold jewelry to sell it or buying more precious metals, it could be towards the end of that trend and that run. So I would expect that we’re gonna see some pullback in precious metals. Silver had an amazing catch-up to gold just in the last six weeks, but I don’t see those as long-lasting trends, certainly not at the pace that they have been moving. The other side of the commodities market, and an important part of the inflation recipe, is the energy sector. And where crude oil goes in 2026 is gonna be—well, I’m gonna leave it to the experts in the commodity space. And for those of you who wanna learn more about that, the CMT Association is gonna host a number of sessions specifically on commodities. January will be metals and minerals. February, we’re gonna be talking about commodities. And in March, we’ll dig into the agricultural landscape as well. 

Andrew Wilkinson 

From a sector stance, Tyler, where is the future juice, and can you name a couple of sectors that you expect to lag going forward? 

Tyler Wood 

So I spent a lot of time looking at relative strength. So the leadership groups in 2025 have really just been technology, and we’ve seen a little bit from healthcare, which has been kind of an interesting runner-up. Technology has turned lower in terms of its relative strength trends against the S&P 500 index, but we’ve seen broad-based outperformance from lots of other sectors. So even communications and consumer discretionary starting to peek their heads out. We’ve seen financials and industrials do really well in the last few weeks. So these are new emerging trends, and healthcare continues to be a strong outperformer, which I think bodes well going into 2026—that you’ve got more rotation, more participation, and not such a narrow leadership group. And I just refer back to that comment about a cap-weighted index. If we’re seeing that those leadership names in the mega-cap tech category struggle, even with strong performance from lots of other securities, because it’s a cap-weighted index, you might not see it show up in the S&P 500 or the NASDAQ 100 itself. But look to those names individually, or to the sector and industry groups, to find those opportunities. 

Andrew Wilkinson 

Brilliant. Thank you very much for joining me today, Tyler Wood. It’s been a pleasure, and just wishing you and your family a happy holiday season. 

Tyler Wood 

Thank you so much, Andrew. Hopefully we’ll get to start the new year off in style in a sunny Florida environment with a bunch of technicians and find out where this year might take us. 

Andrew Wilkinson 

You are heading to Tampa, right? January six and seven. 

Tyler Wood 

That’s the next big CMT Association conference. Every winter, we try to get outta the Northeast and get together with some wealth managers in Tampa, Florida. That’s January 7th through the 9th. 

Andrew Wilkinson 

Brilliant. Thanks for joining me, Tyler, and to the audience, thank you for joining us today. And don’t forget, if you enjoy today’s episode, please do subscribe wherever you download your podcast from.