RECAPPING LAST WEEK
U.S. equity indices ended with mixed performance after a turbulent week in which President
Trump’s pursuit of Greenland threatened to upend trade relationships. After opening the
shortened trading week with a sharp 2% drop, the S&P500, Nasdaq Composite, and Russell 2000
indices recovered most of their losses. Although tensions between the U.S. and Europe eased
somewhat by week’s end, investors’ move toward non–U.S. assets gained further momentum. The
U.S. dollar suffered its worst weekly decline since June, while precious metals continued to soar.
Gold, the traditional store of value in unstable times, jumped 8% to $4,980 and silver leapt 14% to
break above $100 for the first time. Selling pressure in U.S. Treasuries pushed the 10–year yield
up to a five–month high of 4.3% before backing off slightly. International equities have seen strong
inflows in 2026, especially emerging markets which tend to benefit most from a weak dollar. U.S.
sector performance was uneven, with rising oil prices supporting energy’s 3% gain while rate–
sensitive sectors like financials, utilities, and real estate all fell more than 2%. Technology
component Intel plunged 17% after the company posted a quarterly loss and worse–than–
expected outlook. Turning to economic data, long–delayed core PCE price index data from
November revealed a 2.8% YoY increase, only a modest uptick from the prior month. However, the
recently released CPI report suggested that December’s core PCE reading—which will be released
on February 20—could show a 3.1% rise YoY. U.S. business activity remained in expansion
territory this month, though signals of slowing momentum emerged. The S&P Global Flash
Composite PMI stood at 52.7 but job growth has stagnated while higher input costs have pushed
up selling prices. The final January consumer sentiment index rose to a five–month high of 56.4
on economic optimism, though this figure is still 20% below its level a year ago. One–year inflation
expectations fell only slightly to 4%. Overseas, the Bank of Japan kept rates unchanged at 0.75%
while retaining its hawkish inflation and economic growth forecasts. Prior to that decision,
Japanese bond yields jumped to 27–year highs after Prime Minister Takaichi pledged to cut the
consumption tax rate. This move stoked fears that the country could struggle to service its debt–
to–GDP ratio, the highest among developed economies, and thus its financial stability. In China,
GDP growth met the government’s 5% target last year largely by snatching a record share of
demand for global goods, a strategy seen by many economists as unsustainable in the long run.
Domestic consumption continued to weaken as the year went on. Finally, Eurozone business
activity was stable at 51.5 this month, while UK inflation rose to 3.4% YoY in December but was
not expected to derail rate cuts anticipated for later this year.
THE WEEK AHEAD
The shifting geopolitical landscape’s effect on sentiment was evident last week, reviving talk of
the “Sell America” trade that emerged after last April’s sweeping tariffs announcement. Investors
await more details on negotiations between the U.S. and NATO regarding Greenland while also
looking to corporate earnings and the Federal Reserve meeting. The Fed is widely expected to
keep rates steady when it announces its policy decision on Wednesday, but questions around the
central bank’s independence may be more top–of–mind for this meeting. The busiest week of this
corporate earnings season provides investors with an opportunity to see how artificial
intelligence–related investment is progressing. Quarterly updates from Apple, Meta Platforms,
Microsoft, Tesla, UPS, Boeing, Chevron, and many more are on the docket. The U.S. economic
calendar includes consumer confidence, durable goods and factory orders, and the producer
price index. The Bank of Canada is also expected to keep rates unchanged this week, as the
country’s economy is holding up reasonably well in the face of U.S. tariffs. In Europe, the first
estimate of Q4 GDP arrives Friday along with Germany’s December CPI. Inflation updates from
Japan and Australia are also on the international calendar. Odds are rising that the Bank of
Australia may raise rates at its meeting next month with inflation on the rise, while an extension of
recent declines in Japan’s CPI may put additional pressure on the yen
(Schwab)
