Introduction to 2026 Markets
“Nothing changes on New Year’s Day.” This famous line from a 1983 U2 song captures a truth often overlooked in financial markets — while the calendar may flip, the underlying macro and market trends rarely undergo dramatic shifts overnight. 2026 has begun much like 2025 ended: the broadening of markets continued, as global stock markets continued their upward trajectory, supported by expected strong earnings growth, anchored inflation expectations, and optimism around potential central bank policy easing.
Concerns and Trends
Yet, as was the case last year, investors face a proverbial “wall of worry,” none of which is likely to derail the market advance. These include, but aren’t limited to: persistent geopolitical tensions and new flashpoints such as the developments in Venezuela, Greenland, and Iran, questions surrounding the independence of the Federal Reserve (Fed), and the legality of the Trump administration’s tariffs. Meanwhile, the US economy enters the year on a sound footing, resilient, and with important signs that productivity has improved.
Fed Independence Under Scrutiny
The Trump administration’s Department of Justice is opening an investigation into the US Fed and raised the possibility of a criminal indictment connected to Fed Chair Jerome Powell’s testimony regarding cost overruns associated with the Fed’s building renovation. Powell pushed back publicly and strongly, releasing a video in which he argued that the building costs are merely a pretext. The independence of the central bank is critical and a foundational principle of modern macroeconomic management and a cornerstone of financial market confidence.
Energy Markets and Geopolitics
Recent events in Venezuela and Iran have made big headlines. Questions about potential global impacts are being raised. Typically, geopolitical developments have only disrupted markets when they either damage global economic activity — via a growth or supply shock — or provoke a shift in policy by the world’s major central banks. In Venezuela’s case, neither outcome seems likely. The same is true in the Middle East, provided the Strait of Hormuz remains open. Venezuela’s diminished oil production capacity and the overall robustness of world oil supply have kept energy markets stable.
Tariff Pressures and Global Trade
The US Supreme Court delayed its ruling on the legality of the tariffs that President Trump issued last year under the International Emergency Economic Powers Act (IEEPA). A ruling is expected in the coming weeks. Regardless, overall US tariff levels are unlikely to decline substantially even if the IEEPA tariffs are struck down. Other statutes grant the president broad authority to impose tariffs, meaning those previously enacted under the IEEPA could be reimposed under different legal frameworks. Additionally, President Trump announced that several European countries would face additional tariffs if they didn’t support the full sale of Greenland to the US.
Economic Indicators and Performance
US banks were the worst-performing group in the US last week despite delivering strong earnings results that painted a picture of a resilient US consumer and strong trading revenue. Downward pressure came as a result of President Trump calling for a 10% cap on credit card rates. Recent data releases served as a reminder that the US economy has entered 2026 much as it ended 2025 — on a sound footing with resilient, indeed, improving growth. Manufacturing survey data held steady but remains in contraction territory, while services pointed to expansion, albeit at a moderate pace. Businesses continued to show caution, reluctant to hire aggressively yet unwilling to cut staff, as jobless claims stay near historic lows.
Conclusion
The restful holiday period seems a long time ago now, and while it might feel like a lot is changing, the core views haven’t changed. If anything, they are strengthened. There is still a belief that growth will improve globally and stocks have the potential to rise, led by non-US markets and cyclical sectors. The US economy’s resilience, improving productivity, and the potential for central bank policy easing support this outlook. Despite the geopolitical tensions and tariff pressures, the markets have reacted in a relatively sanguine fashion, which is seen as the right and expected reaction given the circumstances.
