TradingKey’s The Week on Wall Street: Resilient Economy Meets Geopolitical Headwinds

Previous Week’s Market Review & Analysis

Macroeconomic Landscape: The week of January 19-25, 2026, commenced with US markets closed on Monday for Martin Luther King Jr. Day, resulting in a holiday-shortened trading week. US inflation data showed Consumer Price Index (CPI) at a modest 0.3% month-over-month and 2.7% year-on-year, with Core CPI slightly lower at 0.2%. The Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, was projected at 0.2% month-over-month, maintaining year-over-year readings of 2.8% for both headline and core measures. Fourth-quarter 2025 US GDP growth was robust at 4.3%, signaling continued economic momentum. The labor market exhibited resilience, with jobless claims coming in less than expected. Federal Reserve officials, having cut rates by 25 basis points in December, are widely anticipated to pause at their upcoming January meeting. Geopolitical tensions escalated early in the week with the "Greenland Crisis," as President Trump threatened tariffs against EU/NATO countries to secure US access to Greenland, impacting sentiment and driving capital towards safe-haven assets. However, reports later in the week indicated that President Trump would not pursue war over Greenland and that increased trade tariffs were off the table, offering some relief to markets.

Market Performance Overview: The S&P 500 experienced volatility throughout the trading week. Following Monday's market closure, the index initially declined by 2.06% on Tuesday, January 20. It subsequently rebounded, gaining 1.16% on Wednesday, January 21, 0.55% on Thursday, January 22, and a marginal 0.03% on Friday, January 23.

Key Events Analysis: The Q4 2025 earnings season picked up pace, with major companies including Netflix, Johnson & Johnson, Procter & Gamble, and Intel reporting. Early indications showed strong performance, with a significant majority of companies exceeding both earnings per share (EPS) and revenue estimates, suggesting an accelerating growth trend. The geopolitical developments surrounding the "Greenland Crisis" and the subsequent reversal on tariff threats were central market drivers.

Flows & Sentiment: Digital asset investment products recorded substantial inflows of US$2.17 billion for the week ending January 19, despite a late-week weakening in sentiment due to geopolitical factors. Equity funds saw estimated inflows of $30.92 billion for the week ended January 14, driven by both domestic and world equity funds. The CBOE Volatility Index (VIX) remained relatively subdued, mostly fluctuating between 13 and 15, indicating cautious investor sentiment. US consumer sentiment improved in January, with the sentiment index rising to 56.4 and one-year inflation expectations decreasing to 4.0%.

Overall Assessment: The week was characterized by a tug-of-war between strong underlying economic fundamentals and corporate earnings on one hand, and significant geopolitical uncertainty on the other. Initial market jitters over trade tariffs and Fed leadership questions were somewhat assuaged by a de-escalation of trade rhetoric. Despite some daily fluctuations, the overall market demonstrated resilience, supported by positive earnings momentum and stable inflation readings.

Next Week’s key market drivers & Investment Outlook

Upcoming Events: The Federal Open Market Committee (FOMC) meeting on January 28 will be a primary focus, with markets anticipating no change in interest rates but closely monitoring the accompanying press conference for forward guidance. Key economic data releases include the initial estimate of Q4 2025 GDP and the December Personal Consumption Expenditures (PCE) price index, both scheduled for Thursday, as well as the Consumer Confidence index on Tuesday, January 27. The Q4 2025 earnings season will continue with reports from numerous large US corporations across various sectors.

Market Logic Projection: Expect markets to remain highly responsive to any new Federal Reserve communications and the tone surrounding future monetary policy. Corporate earnings will continue to influence sector-specific performance, while any resurgence of geopolitical tensions or unexpected shifts in trade policy could introduce renewed volatility.

Strategy & Allocation Recommendations: Investors should maintain a diversified portfolio. Consider tactical allocations to sectors demonstrating strong earnings growth, but be prepared for potential shifts based on incoming macroeconomic data and central bank rhetoric. Prudence is advised given the potential for rapid market adjustments.

Risk Alerts: Geopolitical risks, particularly concerning global trade and international relations, continue to warrant close attention. Uncertainty surrounding the Federal Reserve's long-term policy trajectory and potential leadership changes could also lead to market instability.

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