Economic Update 1-26-2026

On a holiday-shortened week, economic data included an upward revision for 3rd quarter U.S. GDP, gains in personal income and spending, expansionary showings for S&P manufacturing and services, and some improvement in consumer sentiment.

Equities were mixed globally, with slight declines in the U.S. offset by gains internationally, with help from a weaker U.S. dollar. Bonds were little-changed along with minimal change in yields. Commodities gained broadly, mostly in precious metals and especially natural gas, for weather-related reasons.

U.S. stocks fell back last week, largely due to the inability to fully recover from being down -2% early Tuesday, which represented the worst single day decline in several months. The focus was on the intensification of U.S. ambitions towards Greenland, with an initial announcement of a 10% tariff on imports from eight European countries (Denmark, Norway, Sweden, France, Germany, U.K., the Netherlands, and Finland) effective Feb 1, with an added 200% tax on French wine (which tends to be symbolic), coming after French president Macro rejected a seat on the ‘Board of Peace,’ created at the Davos World Economic Forum last week. How these would affect already-existing tariffs was less clear to markets. But, as with several other tariffs, they were viewed as bargaining chips as opposed to being set in stone. That appeared to indeed be the case by Wed., when a low-probability military invasion threat was taken off the table, along with the European tariffs, as the U.S. administration and NATO initiated the “framework of a future deal with respect to Greenland.” Decent economic data later in the week helped a bit, but didn’t make up the brunt of Tuesday’s activity.

By sector, energy and materials stocks gained roughly 3%, bookended by declines of a few percent in financials, utilities, and industrials. Real estate was also down -2%, with most sub-sectors down for the week, despite little change in yields.

S&P earnings reports continue to roll in for Q4. Per FactSet, 13% of firms have now reported, so it’s still early in the season, with the blended year-over-year growth rate remaining at 8.2%. Leadership remains focused on technology (with exceptionally strong revenue growth and profit margins from the hyperscalers in the Magnificent 7 group) and materials (due to stronger metals prices and rising demand from infrastructure, including data centers), with financials and communications also faring at above-average rates.

Foreign stocks were down in local terms, which turned into gains for the week in Europe and the U.K. thanks to a weaker U.S. dollar, while Japan declined outright along with rising yields and proposed unfunded tax cuts. European positivity was helped by decent to continued improvement in economic activity, although still at a modest pace. Emerging markets fared best of all groups for the week, led by a 10% gain in Brazil, helped by easing global trade tensions and strong commodity prices, followed by continued strength in South Korea and Taiwan (technology-oriented) and South Africa (mining).

Bonds were little-changed with minimal changes in yields on the U.S. Treasury curve. Early declines in U.S. Treasury prices/rising yields were in keeping with a drop in confidence along with the administration’s ambitions for Greenland, although those also largely recovered. A drop in the U.S. dollar of around -2% was helpful to foreign local unhedged debt, while hedged bonds were flatter. Japanese government bond yields rose sharply last week (the 10yr rising by nearly a half-percent to 2.3%, the highest level in over 26 years), and the 30yr bond having risen in yield by 3% over the past three years. The recent week’s moves were due to higher inflation breakevens and the popular new prime minister threatening to help affordability by cutting the consumption tax on food (for two years, from 8% to 0%). While politically popular, and in the same lines as other global leaders looking for ways to improve affordability, it also cuts a key revenue source and raises deficits in a country with an already high debt-to-GDP ratio. In response to recent yen weakness against the dollar over the past six months (down nearly -10%), the NY Fed has been performing ‘rate checks,’ which are considered an important verbal first step before implementing any currency intervention. Not unprecedented, but still rare.

Commodities gained across the board last week, with precious metals again leading, with geopolitical concern over Greenland certainly playing a role, followed by energy. Crude oil prices rose 3% last week to $61/barrel. However, the main story of the week was natural gas, where prices soared by over 60% in just a few days in advance of a severe winter storm expected across a substantial portion of the U.S. Midwest and East Coast, and available supply appeared to be a little short.

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.