Straight into the Deep End

It was straight into the deep end for investors in January. Economic data continues to suggest that global growth remains robust, but January reminded investors that many other factors can catalyse market turbulence. Geopolitical risks were in sharp focus, helping precious metals surge to new highs early in the month. The US launched a military strike on Venezuela whilst ongoing risks to international trade were highlighted by Trump’s threats to impose more tariffs on Europe if they did not comply with his desire for control of Greenland. Meanwhile, Japan’s Prime Minister (PM) called a snap election – triggering falling bond prices as yields spiked in response to expectations that fiscal spending will rise further. Lastly, the eagerly anticipated announcement of the next Federal Reserve (Fed) Chair brought yet another source of volatility. Ultimately, January proved to be another positive month for most risk assets with stocks, particularly outside of the US, providing positive returns.

Venezuela is believed to be home to the world’s largest proven oil reserves and is, therefore, strategically important and, in early January, the US military captured President Maduro who is officially accused of drug trafficking. Based upon historical patterns, investors may have expected events in Venezuela to catalyse a spike in oil prices and, by extension, concerns about global growth. Oil prices have risen, from a low starting level, but events did not cause lasting upset for markets. Staying with geopolitics, Greenland also gathered attention in January. It also potentially sits on top of large oil reserves and is said to be home to huge volumes of raw materials critical for electronics and green energy. Moreover, it is located at the intersection of America, Europe and the Arctic, making it important for military security. At the World Economic Forum in January, President Trump made clear that he was seeking to acquire control over Greenland and threatened to increase import tariffs on goods from various European nations if they didn’t back his ambition. Turbulence in stocks was short-lived as Trump rolled back threats after talks with Nato. Details are light but the announcement that a ‘framework of a deal’ had been achieved restored confidence.

There were no fireworks at the Fed’s meeting at the end of January as interest rates were left unchanged. Economic data points to resilience with consumer spending holding up and jobs data showing stability. However, markets were more focussed on Trump’s pick for the next Fed Chair who was announced at the end of the month to be Kevin Warsh. Warsh served on the Fed from 2006 until 2011 and, during this period, he often argued for higher interest rates. His current views are more nuanced, and more supportive of lower rates. However, given his reputation, the announcement on the last day of the month catalysed valuation concerns, particularly in buoyant areas of the market such as precious metals. Silver fell over 30%, its biggest one-day sell off since the 1980s but still ended the month up 18%.

With a lot to contend with and amidst a good start to the earnings season (described further below), stocks proved resilient in January. However, the US Dollar lost ground while stock markets outside the US outperformed as Trump’s unpredictable approach proved off-putting for foreign investors in the US. Gold and broad commodities also made strong gains.

Further east in Japan, an election has been called for 8th February. PM Takaichi is polling well and is betting that she can increase her support, enhancing her mandate to increase government spending through popular policies, such as eliminating consumption tax on food. Long-dated bond yields spiked in Japan, and prices fell, as more inflation and bond issuance were factored into investor expectations. After decades of near-zero inflation, Japan is now experiencing substantial price pressures, making long-term bonds with low fixed payouts less attractive. Whilst it is true that higher bond yields are unfavourable for stocks, as the current value of future earnings falls, higher government spending should support earnings as it puts money in consumers’ pockets, so it is unsurprising that Japanese stocks delivered strong gains over the month.

Bottom Line

There are many potential catalysts for short-term market disruptions and embedding diversification within portfolios is likely to smooth the path of returns. With a longer timeframe we believe it is sensible to focus on the supportive policy backdrop, and it is wise to stay invested.

Noteworthy

Who is Kevin Warsh?

President Trump has nominated economist Kevin Warsh as the new chair of the Fed when Powell’s term ends in May. He was a finalist for the job in 2017, when Trump appointed Powell (and subsequently stating that he made a mistake). Warsh is a graduate of Stanford University and Harvard Law School, has served as a special assistant to the President on economic policy and was the youngest governor in Fed history when he served on the committee from 2006 to 2011. He is married to the granddaughter of Estee Lauder, co-founder of the global cosmetics company, and his father-in-law is a college friend of Trump who has donated money to MAGA Inc.

During his time as a Fed governor he built a relatively hawkish reputation, favouring higher interest rates, but his current stance is more nuanced. He has recently argued for lower interest rates, despite inflation being above target. He argues that strong growth is linked to greater productivity, driven by AI enhancements, that will not be inflationary. As a result of these views, he has also called for regime change at the central bank in respect of the economic models used and wants to further accelerate AI development. He is a welcome choice in the banking sector as he favours rolling back complex regulations and climate stress tests. In terms of balance sheet policies, such as bond-buying programs that were used during the pandemic to keep interest rates and borrowing costs low, Warsh has long criticised these blunt programs. Instead, he seeks a closer relationship between the Fed and the Treasury Secretary with more communication and targeted support for households and small businesses. A greater focus on the size of the balance sheet should be somewhat supportive for the US dollar and, all else equal, a headwind for assets that benefit from a weak dollar. Precious metals and emerging markets felt the brunt of this at the end of the month. However, the extent to which the US dollar will benefit is unclear – as mentioned above, Trump’s erratic policy approach is working in the opposite direction. In any case, Warsh’s demonstrated ability to change his prevailing view suggests his rhetoric will be closely followed by markets.

Q4 Earnings Update

As we approach the halfway point of the Q4 2025 earnings season, results have remained broadly positive, with over 70% of reporting companies beating expectations. While this is an encouraging outcome, it sits slightly below long-term historical averages, even as aggregate earnings growth remains solid at around 9% so far. As usual, much of the market focus has centred on the technology sector, where Microsoft delivered strong results, beating expectations on both the top and bottom line. Despite this, the stock fell more than 11% as investors grew concerned about signs of slowing cloud growth and the scale of the company’s rapidly expanding, AI driven spending. Given Microsoft’s near $4 trillion market capitalisation, the sell off marked the second largest single day destruction of market value on record, wiping roughly $350 billion from its valuation. Meta, the parent company of Facebook, fared much better, with shares jumping following its earnings release. Results suggested that the company’s substantial investment in AI infrastructure is beginning to show signs of paying off, highlighting the mixed fortunes among mega cap technology stocks as they compete for primacy in the AI race. Apple also announced that they had their best quarter of iPhone sales on record, the market rewarded this with shares rising. Outside of the technology sector, payment providers Mastercard and Visa delivered solid results, highlighting a macroeconomic environment that remains broadly supportive as healthy levels of consumer and business spending continue. Elsewhere, defence contractor Lockheed Martin reported mixed results, but the stock was supported by an announcement that its order backlog had reached a record $194 billion, underscoring sustained demand from the US government and European nations as countries increase defence spending in the face of rising global security tensions.