Crosscurrents Early in the Year
January felt like a very long month and was jam-packed with market events.
Equity markets started off strong in 2026 as optimism on the economic and policy front boosted US indices to new highs. An immediate, sharp drop in equity markets mid-month occurred amid threats of tariffs on Europe over Greenland.
Concerns about repercussions and further escalation were reversed the next day with announcements of a “security deal” with Greenland. The spectacular drop in precious metals at the end of the month followed a parabolic move higher in both precious and industrial metals. As concerns about global debt levels grow, gold has become an alternative way to express an investment view against fiat currencies and, at times, trades higher when the US dollar weakens. The commodity trade has gained some strength, with other industrial metals like copper also posting gains.
Technology stocks also dropped sharply at the end of January along with equities and metals. While metals have rebounded with the S&P 500, technology shares remain under pressure. The announcement of former Fed governor Kevin Warsh as a possible replacement for Federal Reserve Chairman Jay Powell, considered more hawkish on the spectrum of possible replacements, was partially credited with the drop in risk assets at the end of January. The public disagreements between the administration and the Federal Reserve may well become a problem, leading to an inability to confirm anyone as the new Fed chair, with further potential consequences for markets.
Additionally, there has been a major sector rotation in technology as software is now seen as the latest potential victim of Artificial Intelligence (AI), and publicly traded stocks are reacting accordingly. This theme may continue to play out, as markets seem quick to react to negative data points (a more hawkish Fed or slower growth for technology due to AI encroachment).
We came into 2026 concerned about volatility, and that concern appears warranted. While the S&P 500 came close to its highs as February trading began, there is already weakness across the board on geopolitical concerns, as Iran is back in the headlines. Worries about how disruptive AI can be to established industries have emerged as a counterweight to the productivity hopes the technology brings. Software and data-related stocks showed increased weakness as Anthropic (started by former Open AI employees) announced that legal and data tools were being made available.
With most US equity indices near record highs, markets seem quick to swoon when bad or unexpected news crosses the tape. Earnings have been reasonably good so far and will help determine how markets progress in 2026. The negative reaction to even minor slowing in AI cloud growth hit Microsoft after Q4 earnings, and investors did not accept that slowing gracefully. While it could be argued that Microsoft is also being caught up in an investor boycott of software, it is an important player across the board and share price weakness is not a positive harbinger. Investors will be looking for growth, cash flow, and strong balance sheets in 2026 and may be casting wider nets than in the past couple of years to find those qualities.
The information in this commentary has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. The opinions, estimates and projections constitute the judgment of Alpine Saxon Woods and are subject to change without notice. This commentary is for information purposes only and is not intended as an offer, recommendation or solicitation for the sale of any financial product or service or as a determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on the investor’s objectives, financial situation and particular needs. The investments or investment strategies discussed herein may not be suitable for every investor. There is no assurance that any investment strategy will be successful.
