Equities ended the week on a cautious note, but the underlying story was far more constructive than the headline indices suggested. The S&P 500 (-0.38%) and NASDAQ (-0.66%) drifted lower, dragged by weakness in mega-cap technology as the ‘Magnificent 7’ fell -2.08%. Under the surface, breadth continued to improve: the equal-weight S&P 500 hit a fresh high mid-week, and small caps extended their leadership, with the Russell 2000 up +2.08% to record highs. Financials stayed choppy as earnings were mixed and political noise around a temporary 10% cap on credit card Annual Percentage Rates (APRs) pressured the sector. In Europe, the STOXX 600 (+0.77%) and the FTSE 100 closed at record highs, underpinned by steadier growth signals and recovering earnings momentum.
Geopolitics drives volatility in oil and precious metals
Geopolitical developments in Iran remained a dominant market driver, leading to sharp moves in energy markets. Brent crude oil briefly touched its highest levels since September on speculation of potential US action before retreating sharply after a more measured tone emerged from Washington. Even after the pullback, Brent crude remained well above last week’s levels, reflecting a still elevated geopolitical risk premium. Precious metals served as the clearest barometer of safe-haven demand, with both gold and silver repeatedly setting new records. Silver’s surge above US$90/oz was especially notable given its sub US$30 starting point in early 2025. While markets welcomed signs of de escalation late in the week, the continued bid for havens suggests investors remain wary of further geopolitical surprises.
Inflation, interest rates and the resilience of growth
US inflation provided a softer headline reading in December, though the data remained noisy beneath the surface given unusual swings in specific goods categories and a rise in trimmed-mean measures. Markets initially reacted dovishly before reversing course as geopolitical concerns pushed energy prices higher and several US Federal Reserve (Fed) officials emphasised that inflation remains above target. Stronger economic data late in the week—lower jobless claims, firmer regional manufacturing surveys and easing input cost pressures—helped reinforce confidence in the durability of the US expansion even as expectations for 2026 interest rate cuts were trimmed. US Treasury yields drifted higher across the curve, however risk assets continued to absorb shifting policy expectations relatively well.
Trade tensions and key events in the week ahead
Trade tensions resurfaced over the weekend after the US signalled potential additional 10% tariffs on eight European countries starting in February, with the possibility of higher rates by June unless and until ‘a deal is reached for the complete and total purchase of Greenland’. This adds a new layer of uncertainty at a time when geopolitical and inflation dynamics are already complicating the outlook. This week, attention turns to the World Economic Forum in Davos, a busy run of global inflation releases, the Bank of Japan’s policy decision, and the next round of major US corporate earnings. The most important data point arrives on Thursday with the delayed October and November personal income and spending reports, including updated core Personal Consumption Expenditures (PCE) inflation, which the Fed’s preferred inflation gauge and a key input into market expectations heading into the late January Federal Open Market Committee (FOMC) meeting.
Weekly Market Commentary
In summary
Broadening market leadership amid cautious headlines
Equities ended the week on a cautious note, but the underlying story was far more constructive than the headline indices suggested. The S&P 500 (-0.38%) and NASDAQ (-0.66%) drifted lower, dragged by weakness in mega-cap technology as the ‘Magnificent 7’ fell -2.08%. Under the surface, breadth continued to improve: the equal-weight S&P 500 hit a fresh high mid-week, and small caps extended their leadership, with the Russell 2000 up +2.08% to record highs. Financials stayed choppy as earnings were mixed and political noise around a temporary 10% cap on credit card Annual Percentage Rates (APRs) pressured the sector. In Europe, the STOXX 600 (+0.77%) and the FTSE 100 closed at record highs, underpinned by steadier growth signals and recovering earnings momentum.
Geopolitics drives volatility in oil and precious metals
Geopolitical developments in Iran remained a dominant market driver, leading to sharp moves in energy markets. Brent crude oil briefly touched its highest levels since September on speculation of potential US action before retreating sharply after a more measured tone emerged from Washington. Even after the pullback, Brent crude remained well above last week’s levels, reflecting a still elevated geopolitical risk premium. Precious metals served as the clearest barometer of safe-haven demand, with both gold and silver repeatedly setting new records. Silver’s surge above US$90/oz was especially notable given its sub US$30 starting point in early 2025. While markets welcomed signs of de escalation late in the week, the continued bid for havens suggests investors remain wary of further geopolitical surprises.
Inflation, interest rates and the resilience of growth
US inflation provided a softer headline reading in December, though the data remained noisy beneath the surface given unusual swings in specific goods categories and a rise in trimmed-mean measures. Markets initially reacted dovishly before reversing course as geopolitical concerns pushed energy prices higher and several US Federal Reserve (Fed) officials emphasised that inflation remains above target. Stronger economic data late in the week—lower jobless claims, firmer regional manufacturing surveys and easing input cost pressures—helped reinforce confidence in the durability of the US expansion even as expectations for 2026 interest rate cuts were trimmed. US Treasury yields drifted higher across the curve, however risk assets continued to absorb shifting policy expectations relatively well.
Trade tensions and key events in the week ahead
Trade tensions resurfaced over the weekend after the US signalled potential additional 10% tariffs on eight European countries starting in February, with the possibility of higher rates by June unless and until ‘a deal is reached for the complete and total purchase of Greenland’. This adds a new layer of uncertainty at a time when geopolitical and inflation dynamics are already complicating the outlook. This week, attention turns to the World Economic Forum in Davos, a busy run of global inflation releases, the Bank of Japan’s policy decision, and the next round of major US corporate earnings. The most important data point arrives on Thursday with the delayed October and November personal income and spending reports, including updated core Personal Consumption Expenditures (PCE) inflation, which the Fed’s preferred inflation gauge and a key input into market expectations heading into the late January Federal Open Market Committee (FOMC) meeting.
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References
Source: https://www.brooksmacdonald.com/resources/insights/weekly-market-commentary
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