Author: Montecito Capital Management
U.S. equities finished last week with modest losses after a volatile, headline-driven stretch, as early sharp declines were partially clawed back into Friday’s close. For the week ending January 23, 2026, the S&P 500 slipped roughly 0.3–0.4%, the Dow Jones Industrial Average fell about 0.5%, and the Nasdaq Composite was essentially flat, outperforming on a relative basis as large-cap technology held up better than the broader market.
Markets were driven far more by geopolitics and policy headlines than by fundamentals. The dominant catalyst early in the week was renewed uncertainty around Greenland-related geopolitical rhetoric, which sparked a pronounced risk-off move, pushed volatility higher, and sent equities sharply lower mid-week. As the week progressed, comments suggesting a softer tone and reduced near-term escalation helped stabilize sentiment, allowing stocks to rebound from their lows, though not enough to finish positive overall.
Overlaying the geopolitical backdrop was the World Economic Forum in Davos, where global leaders emphasized both optimism around AI-driven productivity and caution around geopolitical fragmentation, trade, and fiscal sustainability. While the Davos narrative was broadly constructive for long-term growth, it reinforced the idea that 2026 markets may be shaped as much by politics and global coordination as by traditional economic cycles. Investors appeared willing to re-risk selectively, but not aggressively, given the policy uncertainty still in play.
From an economic standpoint, incoming U.S. data did little to change the outlook. The economy continues to show resilience rather than overheating, reinforcing expectations that the Federal Reserve can remain on hold in the near term. That steadiness helped limit downside pressure in equities, even as investors rotated defensively. Safe-haven assets outperformed, with gold pushing to fresh highs during the week, while the U.S. dollar weakened, reflecting hedging behavior rather than recession fears.
Sector-wise, technology proved relatively resilient, supporting the Nasdaq, though individual earnings disappointments weighed on select names and capped gains. Cyclical sectors lagged as investors reduced exposure to policy-sensitive areas, while energy and materials benefited from commodity strength tied to geopolitical risk.
Overall, last week was a reminder that markets remain headline-sensitive and prone to sharp swings, even in the absence of major economic deterioration. By week’s end, equities had stabilized but remained cautious, setting the stage for upcoming earnings reports, central bank signals, and any further developments on the geopolitical front to determine near-term direction.
