January Market Update: Navigating Volatility Driven by Policy, Geopolitics, and Metals

Stocks and bonds began the year on a positive note, extending the rally that characterized recent years. This outcome may surprise some market participants given the multiple episodes of volatility stemming from geopolitical developments and Federal Reserve policy decisions. Despite headline-driven short-term fluctuations, including the S&P 500's steepest single-day decline since October of last year, markets recovered swiftly. Within a matter of days, major benchmarks achieved fresh all-time highs, supported by robust corporate earnings that have bolstered investment portfolios.

For those with long-term investment horizons, January offers an important lesson: while headlines can trigger unpredictable market movements, it is fundamentals and long-term planning that ultimately determine success. Although geopolitical developments and policy ambiguity will probably generate additional volatility during 2026, the most effective approach to managing these challenges continues to be a diversified portfolio that aligns with long-term financial objectives.

Primary Market and Economic Factors During January

• The S&P 500 advanced 1.4% during January and temporarily exceeded 7,000 on an intraday basis for the first time. The Nasdaq Composite increased 0.9% while the Dow Jones Industrial Average climbed 1.7%.
• The CBOE VIX volatility index concluded the month at 17.44 following a rise above 20 driven by geopolitical concerns.
• The Bloomberg U.S. Aggregate Bond Index edged up 0.1% during the period as longer-dated interest rates increased. The 10-year Treasury yield finished January at 4.24%, marking its highest level since September of last year.
• International developed markets surged 5.2% in U.S. dollar terms according to the MSCI EAFE Index, while emerging markets advanced 8.8% based on the MSCI EM Index.
• President Trump announced the nomination of Kevin Warsh to serve as the next Fed Chair. Upon Senate confirmation, he would assume the position in mid-May.
• Gold climbed to a record closing price of $5,417 per ounce before experiencing a nearly 10% decline on January 30.
• Similarly, silver reached a closing high of $116.70 before dropping sharply to end the month at $85.20.
• The U.S. dollar index declined further to approximately 97.0, touching its weakest point in nearly four years, before recovering modestly following the Fed Chair announcement.
• The Federal Reserve maintained its policy rate at 3.50 to 3.75% during its January meeting, after implementing three consecutive quarter-point reductions during the latter half of 2025.
• Consumer Price Index inflation held steady at 2.7% year-over-year in December, remaining above the Fed's 2% objective. The Producer Price Index rose to 3.0%.
• Washington concluded the month with a partial government shutdown.
• Harsh winter conditions throughout much of the Eastern and Southern United States triggered substantial increases in natural gas and electricity costs.

Geopolitical developments pushed market volatility higher

Early in January, a U.S. military operation in Venezuela led to the apprehension of Nicolás Maduro. Although the operation focused on narco-terrorism, discussions rapidly shifted toward oil. Venezuela possesses the world's largest confirmed oil reserves yet produces less than 1% of global crude output owing to deteriorated infrastructure. For market participants, the principal mechanism through which geopolitical developments influence financial markets involves commodity pricing, with oil remaining fundamental to the global economy.

Geopolitical anxiety intensified following U.S. statements concerning the acquisition of Greenland based on its strategic significance for defense and natural resources. This triggered diplomatic tensions with NATO allies involving tariff discussions that produced the S&P 500's sharpest decline since October of last year. Nevertheless, circumstances rapidly improved after President Trump convened with the NATO secretary general and established a "framework of a future deal," prompting market recovery.

For those investing with long-term horizons, geopolitical developments may generate near-term uncertainty, but historical evidence indicates that their impact on markets and the economy is frequently exaggerated. Markets have generally rebounded as initial concerns dissipate. Market participants should refrain from overreacting to news cycles and instead preserve a long-term orientation toward financial objectives.

Fed uncertainty influenced gold, silver, and currency movements

Precious metals sustained their rally until a substantial reversal occurred on January's final trading day. Gold climbed to nearly $5,600 on an intraday basis while silver's spot price surpassed $120 per ounce before both experienced significant selloffs. These movements have resulted from multiple factors including geopolitical risk, central bank acquisitions, and questions surrounding Federal Reserve independence.

The forces propelling gold and silver have been characterized as the "debasement trade," representing the notion that fiscal and monetary policies that effectively diminish the dollar, generate deficits, and produce inflation may strengthen precious metals. Fed uncertainty, including speculation about whether a new Fed chair might pursue lower interest rates, has pushed these metals higher.

Nevertheless, on January 30, President Trump revealed his plan to nominate Kevin Warsh as the next Fed Chair following Jerome Powell's term conclusion in mid-May. Warsh is a former Fed governor who has recently expressed preference for lower interest rates. However, he has also demonstrated hawkish tendencies historically, indicating he has supported maintaining elevated rates to control inflation. For market participants, this altered expectations by suggesting a potentially smoother leadership transition at the Fed. This development triggered a sharp decline in both gold and silver, accompanied by a modest dollar appreciation.

This reversal highlights both the susceptibility of precious metals to boom-and-bust patterns and illustrates how rapidly markets can pivot based on policy expectations. While precious metals can benefit portfolios, their volatility throughout January illustrates why they should complement, rather than substitute for, foundational holdings in equities and fixed income.

Corporate profitability remained solid amid uncertainty

Beyond the prominent global developments, fourth quarter earnings demonstrated that corporations continue to deliver strong performance. According to FactSet, 33% of S&P 500 constituents have disclosed results with 75% exceeding expectations. Should these patterns persist, large publicly traded corporations could achieve an 11.9% growth rate for the quarter, marking the 5th consecutive quarter of double-digit earnings expansion. On a trailing 12-month basis, earnings growth has accelerated to 12.8% based on consensus projections.

Understandably, many market participants are concentrating on AI and technology earnings given these equities have driven market returns during recent years. Thus far, markets have exhibited mixed responses to these companies' earnings, even when surpassing estimates, reflecting elevated expectations and uncertainties regarding spending sustainability. Concurrently, numerous other sectors have benefited from broad economic expansion and have expanded their earnings at accelerated rates as well.

For long-term participants, the fundamental message from earnings season remains encouraging. Corporate profitability continues to be robust across multiple sectors, justifying equity valuations. This fundamental resilience explains why major benchmarks maintained positive returns for the month despite considerable turbulence.

Harsh weather impacted large portions of the nation

January's harsh winter conditions, designated Winter Storm Fern, impacted at least 21 states and more than half the U.S. population. The storm prompted state emergency declarations and generated disruptions to economic activity, including power failures and thousands of canceled flights.

While the welfare of those impacted by the storm remains paramount, historical evidence demonstrates that weather-related disruptions such as hurricanes and severe winter storms have minimal lasting influence on the national economy. The critical distinction involves whether these events damage productive capacity including manufacturing facilities, equipment, and commercial enterprises, or whether they merely defer activity. In this instance, temporary disruptions to sectors including retail and construction simply postpone economic activity.

The bottom line? January featured market turbulence stemming from geopolitical developments, Fed policy, and additional factors. Nevertheless, markets demonstrated resilience and strong corporate profitability helped major benchmarks establish fresh all-time highs, even as precious metals declined sharply. For long-term participants, this reinforces the significance of maintaining appropriate asset allocation that corresponds with financial objectives.

If you would like to discuss how these market dynamics may impact your portfolio and long-term plan, our advisors are here to help. We welcome the opportunity to review your strategy, answer questions, and ensure your investments remain aligned with your goals. Contact OnePoint BFG to start the conversation.

Investment advisory and financial planning services offered through Bleakley Financial Group, LLC, an SEC registered investment adviser, doing business as OnePoint BFG Wealth Partners (herein referred to as “OnePoint BFG”).

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