**Weekly Market Recap: Choppy Action, Small Caps Shine**

Last week’s stock market action was mixed. While most major indexes slipped slightly, the small-cap Russell 2000 stood out by hitting a fresh all-time high. The Nasdaq dipped 0.66%, the S&P 500 lost 0.38%, and the Dow Jones Industrial Average dropped 0.29%. The tech sector remains under pressure, but with earnings season kicking off, investors are hoping it will bring some much-needed momentum.

Meanwhile, cryptocurrency markets continue searching for a solid bottom, and precious metals like gold are approaching critical levels that could either lead to a breakout or a pullback.

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**Stock Spotlight: DigitalOcean Holdings (DOCN) – 52% Upside Potential**

DigitalOcean (NYSE: DOCN) offers cloud computing services tailored for startups and developers. The company provides tools like virtual servers, managed databases, Kubernetes, serverless computing, and AI support. Its latest quarter showed revenue of $229.6 million and earnings of $56 million.

From a valuation standpoint, the stock is somewhat expensive with a price-to-earnings (P/E) ratio of 22.13 and a price-to-sales (P/S) ratio of 6.07. However, it has a solid EV/EBITDA of 18.81. Technically, the stock just broke out from an ascending triangle pattern, signaling continued upward movement.

What’s driving the growth? DigitalOcean is seeing strong demand for its AI-focused platform, Gradient AI Agentic Cloud. Direct AI revenue more than doubled for the fifth straight quarter in Q3 2025. The company is capturing market share from larger players by offering user-friendly and cost-effective cloud solutions.

They also raised their guidance for 2025 and expect revenue to grow by 18–20% in 2026, thanks to AI adoption and general cloud usage. Strategic partnerships and new product innovations are helping attract new customers while keeping existing ones loyal.

Financially, DigitalOcean is becoming more efficient too—its free cash flow margin hit 21%, and operating costs are being managed well.

**Analyst Ratings:**
– Barclays: Overweight
– Piper Sandler: Neutral
– Canaccord Genuity: Buy

**Buy Zone:** Above $45–$46
**Target Price:** $80–$82

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**Stock Spotlight: Peabody Energy (BTU) – 26% Upside Potential**

Peabody Energy (NYSE: BTU) is a major global coal producer supplying both thermal coal for power and metallurgical coal for steelmaking. The company made $1.01 billion in revenue last quarter with earnings of $3.23 million.

Valuation looks attractive here—P/S is at 1.08 and EV/EBITDA is 9.27. The book value stands strong at 29.11. Technically, the stock is building energy inside a saucer pattern, which often precedes big upside moves.

Why now? U.S. coal demand is holding steady due to delays in shutting down coal plants, giving Peabody pricing power through 2026. Most of its output is already locked in at solid prices.

The company’s focus on metallurgical coal—used in steelmaking—adds growth potential, especially with strong demand in Asia. Recent acquisitions and improved mine operations are boosting margins and efficiency.

Peabody also benefits from U.S. policy changes that reduce royalty rates and offer tax incentives for coal production, especially metallurgical coal.

**Analyst Ratings:**
– UBS: Neutral
– Benchmark: Buy
– Texas Capital Securities: Buy

**Buy Zone:** Above $28–$29
**Target Price:** $46–$48

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**Stock Spotlight: Baidu (BIDU) – 87% Upside Potential**

Baidu (NASDAQ: BIDU) is China’s top search engine and a key player in artificial intelligence, autonomous driving, and cloud services. It reported quarterly revenue of $31.17 billion with $3.77 billion in earnings.

Valuation remains attractive with a P/E of 13.63, P/S at 2.77, and EV/EBITDA at 9.36. Technically, Baidu is close to completing a saucer base breakout—often a powerful bullish signal.

What’s behind the bullish case? Baidu is spinning off its AI chip unit Kunlunxin via a Hong Kong IPO in 2026, potentially unlocking huge value.

The company’s latest AI model, ERNIE 5.0, launched with multi-modal capabilities including text, image, audio, and video processing—putting Baidu at the forefront of China’s AI race. Upcoming chips like Kunlunxin M100/M300 will power massive AI models.

Baidu’s search business remains strong and continues to integrate more AI features, while its Qianfan Cloud platform sees growing demand for generative AI workloads.

Apollo Go, Baidu’s autonomous ride-hailing service, has surpassed 10 million rides in China and is expanding internationally. In some cities, the robotaxi service is close to turning profitable—a major milestone.

**Analyst Ratings:**
– Freedom Capital Markets: Buy
– Jefferies: Buy
– JP Morgan: Overweight

**Buy Zone:** Above $125–$126
**Target Price:** $280–$290

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**What to Watch This Week**

**Federal Reserve Under Pressure**

The Fed’s independence is being questioned as fiscal dominance becomes more obvious. Even though inflation appears under control, the Fed hasn’t yet signaled more rate cuts—and political pressure is building.

A new lawsuit against Fed Chair Jerome Powell adds even more uncertainty as his term ends soon. Meanwhile, any weakness in the market could force the Fed’s hand to act sooner than planned.

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**Earnings Season Begins**

With stock valuations high following strong gains in 2025, this earnings season needs to deliver. Expectations for Q4 are about 8.3% EPS growth year-over-year and full-year growth around 12–13%.

Looking forward to 2026, earnings are projected to grow by more than 14%, powered by AI adoption, strong consumer spending, increased M&A activity in financials, and possible regulatory tailwinds.

So far, bank earnings have been mixed—JPMorgan missed on profit despite beating on revenue—but other banks have performed better. Strong forward guidance from AI-driven companies and banks could help lift broader markets.

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**Sector Trends Shift**

There’s been a notable shift in sector performance:

– **Basic Materials (XLB)** just overtook **Healthcare (XLV)** as the top-performing sector since Q4 started.
– **Industrials (XLI)** are close behind.
– **Energy (XLE)** has seen renewed strength.
– **Utilities (XLU)** are now lagging significantly.

Tech (XLK) continues to drag down major indices—earnings season could be the spark it needs.

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**Metals Near Key Resistance**

Gold prices have soared beyond most expectations and are now testing major resistance levels versus the S&P 500 (GLD/SPY ratio). The next move will determine whether gold pulls back or begins another leg higher.

If you’re holding metals-related assets, consider booking partial profits as prices near long-term resistance.

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**Commodities Showing Signs of Life**

The long-term downtrend in commodities (DBC/SPY ratio) may be ending. For years, stocks have outperformed commodities as inflation cooled off since mid-2022.

But now the ratio is trying to break out of its falling trendline—a sign that commodities could start catching up or even outperforming stocks soon.

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**Bond Market Warning Sign**

Watch the ratio between high-yield bonds (HYG) and intermediate-term Treasuries (IEI). This gauge reflects investor risk appetite.

Since April last year, risk appetite has been strong—but recently momentum has faded. If junk bonds start underperforming Treasuries significantly, it could signal rising market volatility ahead.

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**Crypto Watch: Solana (SOL)**

Solana is showing real signs of recovery after months of decline. Last week it broke above its December high—a key first step toward reversing the downtrend.

A rounding bottom pattern suggests a potential breakout ahead. If SOL clears resistance around $175–$190, it could confirm a new bull trend with longer-term targets as high as $500 per coin.

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**Key Takeaway**

Markets remain volatile but full of opportunity—from cloud computing plays like DigitalOcean to energy names like Peabody and AI leaders like Baidu. Keep an eye on sector shifts, earnings reports, commodity movements, and crypto signals as we head deeper into Q1 2026.