January Markets: Volatility Returns
Hopes that 2026 would usher in a calmer geopolitical backdrop were quickly dashed in January as President Donald Trump once again dominated the global narrative. The month was marked by a series of high-profile flashpoints, from a dramatic intervention in Venezuela – widely viewed through the lens of energy security – to renewed instability in Iran, where violent crackdowns on protests raised regional tensions. While the US has stopped short of direct action against Tehran, a visible build-up of military presence in the Middle East pushed oil prices sharply higher towards the end of the month. Meanwhile, Trump’s brief escalation with European allies over Greenland – followed by a swift retreat – served as another reminder of his familiar brinksmanship.
Trade tensions resurface, with geopolitics becoming a firm market driver in 2026
- Global equity markets were volatile at the start of January, with trade-war concerns rising after Donald Trump threatened new tariffs on European countries opposed to US efforts to secure control of Greenland.
- Trump threatened that 10% tariffs would come into effect on 1st February in Denmark, Norway, Sweden, France, Germany, Great Britain, the Netherlands, and Finland. These tariffs would have increased to 25% on 1st June and would continue until a deal was reached for the United States to undertake the “complete and total purchase” of Greenland.
- However, equity indices quickly reversed some of the losses after Trump softened his stance. In a ‘Truth’ social media post, he stated that he, and NATO Secretary General Mark Rutte, had “formed the framework of a future deal with respect to Greenland” and that he would no longer “be imposing the tariffs that were scheduled to go into effect on February 1st.”
Federal Reserve succession speculation sparks volatility in precious metals pricing
- President Donald Trump announced that he had nominated Kevin Warsh, a former Federal Reserve (Fed) governor, to head the US central bank. If confirmed by the Senate, Warsh would succeed Chair Powell when the latter’s term expires in May. Resultantly, markets were particularly volatile towards month end – with precious metals at the centre of the fall. The move opened the door to speculation on what will happen to interest rates over the coming months, with most traders still expecting two rate cuts by the end of the year.
- Alongside this news, the Fed, in line with market expectations, left interest rates unchanged at 3.75% for the third consecutive month. The vote fell 10 – 2 in favour of the decision, with the two dissenting policymakers preferring a 25bps reduction.
- The Fed’s accompanying policy statement commented that the US economy “has been expanding at a solid pace,” as well as inflation being “somewhat elevated.” Fed Chair Jerome Powell suggested that with the economy’s strength, interest rates did not appear to be “significantly restrictive.”
Political uncertainty and fiscal concerns influence Japanese markets
- Japanese equity markets were boosted by Prime Minister Sanae Takaichi’s announcement of an early parliamentary election on 8th February, as she looks to consolidate power and secure public support for her aggressive spending plans. However, Takaichi surprised investors by pledging that if she secures a fresh mandate for her new coalition, the government would reduce the consumption tax on food (currently at 8%) to 0% for two years – leaving investors to question how lost revenue would be offset. This only added to growing concerns about the health of Japan’s finances.
- The Japanese yen fluctuated sharply amongst political uncertainty following PM Takaichi’s snap election announcement and discussions of unfunded tax cuts. Speculation about government intervention in the foreign exchange markets led the yen to surge against the US Dollar. Although no direct intervention was confirmed, Japanese authorities provided verbal guidance, with Takaichi stating that the government would take all necessary measures to address speculative and highly abnormal movements.
- The Bank of Japan left its key policy rate unchanged at 0.75%. Having raised the rate twice in 2025, the central bank reiterated that it would increase it further if the economy and prices evolve in line with its forecasts.
January was a volatile month for equity markets as investors attempted to keep on top of various factors – not least the many actions of the US government, both at home and on foreign soil. Unsurprisingly, it was US large cap equities that suffered the most, ending the month marginally down. Meanwhile, smaller US companies, which had been performing strongly earlier in the month, lost significant ground in the final week and ended the period with a more subdued 3% gain. Emerging Markets and Asia continued to be the poster child for equity diversification, reminding investors that the US is not the only market that can benefit from artificial intelligence related investment, with two key tech names in the region returning double digit performance in the month.
Bond markets saw a quieter month, with no major central banks altering interest rates. However, all eyes remain on the US and incoming Fed chair, Kevin Warsh. The UK ten-year gilt ended the month with a marginally higher yield than at the turn of the year, offering 4.52% at the end of the month compared to 4.48% at the end of December. In the US, the ten-year treasury also spiked higher after starting at 4.17% it ended January paying 4.24%.
Key portfolio diversifiers, such as infrastructure, property and diversified alternatives all ended the month in positive territory and helped to shield investment portfolios from some of the volatility felt elsewhere.
In summary
Overall, January served as a timely reminder that markets rarely move in a straight line and that politics, policy shifts and geopolitical surprises can quickly unsettle even the strongest economies. Rather than trying to predict every headline, the more effective approach is to build resilient portfolios that don’t rely on any single country, sector or asset class. Diversified investments – spanning regions, bonds, alternatives and real assets – have once again helped cushion volatility and capture opportunities wherever they arise. As IFAs, our role is to stay close to both markets and our investment providers, continually monitoring developments and making thoughtful adjustments where needed, so clients can remain focused on their long-term goals with confidence. While uncertainty is likely to remain a feature of 2026, a disciplined, diversified strategy and proactive oversight give us every reason to look ahead with reassurance rather than concern.