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What happened last week?
Global markets
The trading week spanning the market closes of 16 and 23 January 2026 was defined by extraordinary "V-shaped" volatility. Global markets grappled with a high-stakes diplomatic standoff over Greenland alongside a crucial pivot in the US quarterly earnings season. The previous week ended with a surge driven by semiconductor optimism. Over the weekend sentiment quickly descended into a state of alarm over potential transatlantic trade dismantling, only to conclude with a dramatic relief rally following de-escalatory signals from the World Economic Forum in Davos. Investors performance was dictated by the ability to navigate "geopolitical tail risk" while tracking a significant rotation into domestic cyclicals and international value.
US
United States equities endured a tumultuous five-session stretch, with the S&P 500 ending the week broadly flat. The defining moment of the week was "Tariff Tuesday" on 20 January, which saw the index suffer a sharp (-2.06%) single-day sell-off as the White House floated 25% tariffs on European allies as leverage for the Greenland acquisition. However, sentiment pivoted on Wednesday following a keynote address in Davos that signalled a shift toward a multilateral framework, effectively triggering a rush back into risk assets that carried through to the Friday close.
On the corporate front, the earnings narrative was mixed. While Netflix reported a headline beat, the result failed to impress the market; shares tumbled as investors focused on cautious 2026 outlook, and the bid for Warner Bros. Discovery. Technology sentiment was further dampened late in the week by Intel, which plunged 13% after issuing a grim Q1 forecast - a stark reminder that the semiconductor recovery remains uneven. Conversely, the Russell 2000 reached an all-time high, reflecting a healthy rotation into domestic cyclicals as US Real GDP growth estimates for 2026 remain pinned above 2%.
Europe
Europe sat at the epicentre of the week's trade volatility. The STOXX Europe 600 closed the week 1% lower (and flat in USD terms). This modest weekly drop masks a significant mid-week drawdown, as "Anti-Coercion Instrument" (ACI) discussions in Brussels heightened fears of a trade war.
The week ended on a stronger note as the luxury sector, led by LVMH, saw stabilising demand from a recovering Chinese consumer base, while Ericsson shares surged 12% following a robust profit beat.
Despite the geopolitical noise, the "Davos pivot" on Thursday allowed European indices to snap a four-day losing streak, suggesting that fundamental growth expectations for the Eurozone remain intact.
Rest of the world
The MSCI Emerging Markets Index was the week's standout performer, gaining 2.7%. This outperformance was driven by Asian technology stocks which were boosted by prior week's TSMC bullish investment guidance, and maintained their momentum throughout the week as a "safe harbour" from Western trade disputes. In China, tech sentiment was challenged mid-week as Trip.com faced heavy selling pressure following an antitrust probe. However, broader index support from the PBoC and a rotation into Korean memory chip manufacturers allowed the region to decouple from the "Greenland Risk" affecting the West.
Our view on equity
Equity asset class
POSITIVE in the current environment
We shift to a Negative stance on government bonds. Positive global growth dynamics, price pressures in the US and profligate fiscal policies reduce the attractiveness of long-term government bonds as a potential hedge for economic downturn and increase the risk of higher long-term yields. Limited prospects of further central banks’ rate cuts and unattractive yield curve slopes at the front-end also reduce the attractiveness of government bonds on short-to-medium term maturities.
Earnings
POSITIVE as breath to increase
Earnings remain a tailwind for equities, supported by a strong third-quarter earnings season and expectations that growth will accelerate and broaden in 2026. Technology stocks should continue to deliver robust performance, while the “old economy” is set to recover.
Valuation
NEUTRAL as US large caps remain expensive
US technology stocks remain expensive, although growth and profitability provide some support while international equities are more reasonably valued. Equity risk premia remains low in both the US and Europe.
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