Weekly Newsletter: January 26, 2026
“Gloom and misery everywhere, stormy weather” may be the song of the week. From the southwestern US through to New England, snow and frigid temperatures have chased everyone inside. While a bit warmer in Davos, the US contingent got the cold shoulder from attendees as Trump made his case for taking over Greenland. In classic Trump fashion, by the end of the week, it was announced that there was a “framework of a future deal.” In a similar vein, almost everyone has a framework for future wealth. The gloom from the geopolitical news did spread a bit to Wall Street, as gold and silver continue to rally, and the dollar dipped a bit. Stocks seem frozen in place, awaiting the Fed meeting this week and commentary from Fed Chief Powell on the economy and potential plans for retirement when his term is up in May. Expect icy comments from the White House if the Fed keeps rates steady, as many economists expect. The economic reports during the week, contrary to the weather outside, demonstrated an economy running pretty hot. GDP rose well over 4%, allaying fears of an economic slowdown from the tariffs of a year ago. Inflation remains sticky around 3%. Economists worry that the huge buildup of inventories early in 2025, ahead of the tariffs, has been drawn down and is in need of rebuilding. This, in turn, could begin showing up in the inflation data later in the year. A general thaw is coming as pitchers and catchers report to spring training in two weeks.
The economic data last week were generally in line with an economy that is doing well. For all the handwringing about weak jobs, slowing growth, and higher inflation, only the high inflation figures have held water. As mentioned above, the first revision of third-quarter growth came in better than expected. There will be two more revisions before it becomes a “solid” number. Behind the numbers were a still strong consumer, better exports, and more government spending. The consumer has been counted out more times than any prize fighter in their career, but spending continues to be strong. Exports will get another look this week as the trade deficit for November is released. The October data was a big surprise, coming in at its lowest level in years. It should come as no surprise that the government continues to spend. Jobless claims remain well within historical ranges, indicating a still good jobs market. Seasonal factors do play a role in the jobless claims. Claims tend to decline in Jan/Feb and flatline until May, bounce up for six weeks before returning to May levels in August. Finally, they tend to rise over the last few months of the year. Looking at the annual pattern, today’s figures are slightly below the average, so until changes show up, the job market looks good.
Interest rates have been ticking up a bit recently in response to the higher inflation data. Interest rates have increased dramatically in Japan, and may be attracting some money into their higher-yielding bonds as well. But for all the geopolitical news of the week and so far this year, interest rates have generally been quite steady. Investors are increasingly comfortable in the riskier parts of the bond market, as high yield and corporate bonds have performed better than treasuries. The Tuesday freakout about Greenland did push risk assets lower vs. treasuries, but like Trump, quickly reversed by the end of the week. The rate decision this week and press conference to follow will provide bond investors plenty to ponder as expectations for steady rates through the summer begin to be considered as a real possibility.
Earnings season took a back seat to the geopolitical news last week. From allowing 401k plans to be used to buy homes to capping credit card rates, the financial sector was in the crosshairs. Whether Congress passes legislation or the banks voluntarily cut rates remains to be seen, but the good banking earnings news was overshadowed by the White House comments. Airlines had a good quarter, again, an indication of a relatively healthy consumer. This week, the tech sector gets the spotlight as Microsoft, Meta, and Apple all report. Comments around AI, the impact on earnings, and overall expectations for future growth could move these companies this week. Smaller companies in the AI space, like semiconductors and other infrastructure plays, will also be chatting on the impact of AI. January has provided plenty of drama, and the performance of the various indices likely surprised many, as the tech sector has lagged and small caps have been stellar. These periods of tech weakness and small-cap strength have shown up occasionally in the past few years. Just maybe this time will be different!
The Fed meeting and corporate earnings will keep investors glued to the news flow this week.
The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.