Markets started 2026 strongly but ended January with sharp cross-asset volatility driven by shifting US policy expectations and extended positioning in precious metals.
Equities broadly advanced, with gains widening beyond US mega-cap tech into cyclicals, small caps, and non‑US regions such as Europe and Japan.
Precious metals surged to record highs amid concerns about US policy credibility and dollar debasement, before a dramatic late‑month reversal as positioning unwound.
Geopolitical tensions, especially surrounding Greenland, highlighted Europe’s growing unease with a more transactional US foreign policy.
Japan saw rising bond yields and continued equity strength as markets priced expansionary fiscal policy.
Volatile end of month clouded an otherwise strong start to the year
If January is any guide to the year ahead, we would suggest buckling in, as markets delivered a volatile start to 2026. The year started off with the US extraction of the Venezuelan President Nicolas Maduro with long term implications to global oil markets. Since then, headlines swung between renewed US tariff threats, heightened geopolitical tension (notably, evolving situations around Greenland and Iran), continuing anxiety around US fiscal brinkmanship, and re-emerging fears of another US government shutdown. A closely watched Federal Reserve meeting kept policy unchanged. The month closed with sharp cross-asset volatility coinciding with President Trump’s nomination of Kevin Warsh as the next Fed chair.
“We would suggest buckling in, as markets delivered a volatile start to 2026.”
Equities continue performing while metals experience heightened volatility
Equities navigated the noise to finish January modestly higher, with participation broadening beyond US mega-cap technology into more cyclical segments and non-US markets. In the US, the S&P 500 ended the month up +1.4%, underperforming the index’s equal-weighted counterpart (+3.4%) and the Russell 2000 Small Cap index (+5.4%), which posted its longest winning streak over the S&P 500 since 1996. Europe outperformed (Euro Stoxx 600: +3.2%), while Japanese equities continued their strong run (MSCI Japan: +4.9%) in local currency terms.
The dominant theme in January, however, was the continuing so-called ‘debasement trade’: less an inflation story than a question of confidence in US policy credibility and the long-term appeal of dollar-denominated assets. This was most visible in the extraordinary rally in precious metals and a weaker US dollar. Gold surged to successive record highs, reaching an intraday peak near $5,600 per ounce, and silver also printed a record around $121.6. Meanwhile the dollar index slid to its weakest level since early 2022.
Late-month price action, however, underlined how crowded this trade had become. The nomination of Kevin Warsh as Fed chair on Friday was interpreted as hawkish relative to expectations, steepening the yield curve and pushing up the dollar. This, along with stretched positioning and increasing margin requirements led Gold to suffer its steepest daily drop since 1983. Silver followed suit with an even steeper fall as Asian traders faced a physical shortage and deleveraged into a falling market. As we write this, both metals have lost further ground, albeit stabilising in the past hours. Our conviction remains in gold’s long-term structural fundamentals although we can see additional volatility shakeouts over the coming months. In a world where policy uncertainty, geopolitics, and questions around fiscal discipline remain live market inputs, hard assets remain attractive.
“Gold surged to successive record highs, reaching an intraday peak near $5,600 per ounce.”
Family feuds
Geopolitics also returned to the fore in January, particularly in Europe, where Greenland continued to be a source of transatlantic friction and a timely reminder that trade and security risks are increasingly intertwined. European leaders moved quickly to rally behind Denmark and Greenland, publicly reaffirming principles of sovereignty and territorial integrity, while markets attempted to digest a series of unusually personal diplomatic exchanges, including President Trump publicly rebuking Norway’s prime minister over the Nobel Peace Prize. The deeper concern, however, was less about individual episodes and more about precedent.
While rhetoric cooled later in the month following President Trump’s remarks in Davos, where he stepped back from earlier threats and instead framed Greenland within a broader NATO-led Arctic security discussion, and subsequent efforts to channel the issue into a cooperative security dialogue, the episode crystallised a broader European fear of a more transactional US foreign policy, with a greater willingness to use economic leverage to achieve strategic aims, and underscored Europe’s vulnerability when faced with a more confrontational US approach to diplomatic affairs.
The extraction of President Maduro upped the ante in the geopolitical game of influence between the US and China. While it raises the possibility of Venezuelan oil supply returning to global markets, the financial requirements needed to repair failing infrastructure mean this is still some time away. Elsewhere, US diplomacy is putting increased pressure on Russia and Ukraine to reach a peace deal and the violent crackdown on protests in Iran has raised the spectre of renewed Israeli and American intervention. Oil prices have remained remarkably stable amidst these developments.
“Greenland continued to be a source of transatlantic friction and a timely reminder that trade and security risks are increasingly intertwined.”
The land of rising yields
Japan came back into focus in January as bond market volatility, election-driven fiscal expectations and currency dynamics combined to drive sharp market moves. With the upcoming snap general election widely expected to return the Liberal Democratic Party under Sanae Takaichi, investors are increasingly pricing a more expansionary fiscal stance. While this would add inflationary pressures to the economy which would allow the Bank of Japan to further normalise its ultra-loose policy stance, concerns over rising interest burden may halt them in their tracks. Long-end Japanese government bonds sold off in January, with 30- and 40-year yields now sitting near multi-year highs, as markets reassess how long yield suppression can persist in a higher inflation environment. Japanese equities, meanwhile, continue their strong run as the prospects of this more expansionary government provide a continued tailwind for corporates.
“Bond market volatility, election-driven fiscal expectations and currency dynamics combined to drive sharp market moves.”
Navigating the currents
As we move further into 2026, markets continue to adjust to a world where geopolitics and fiscal policy play an outsized role in driving asset prices. Periodic bouts of volatility are likely to remain a feature rather than an exception, while signs of a rotation away from US mega-cap technology reinforce the importance of diversification across geographies, themes and investment styles. In the current environment, we continue to see hard assets as an important ballast within portfolios as we look to navigate what is likely to be another eventful year.
“Markets continue to adjust to a world where geopolitics and fiscal policy play an outsized role in driving asset prices.”
If you have any questions about the themes discussed in this article, please do not hesitate to get in contact with us: info@bedrockgroup.com
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