Market Update 1/26/26

By Jerry Wagner

Market snapshot

•  Stocks: The major stock indexes all closed slightly lower this past week. The S&P 500 declined 0.35%, the NASDAQ fell 0.06%, and the Russell 2000 lost 0.32%. 

•  Bonds: Bonds saw mild gains. The U.S. Aggregate Bond ETF (AGG) advanced 0.06%, while the 20-year Treasury Bond ETF (TLT) rose 0.15%.

•  Gold: Gold futures closed the week at $4,979.90, up $384.50 per ounce, or 8.37%.

•  Market indicators and outlook: Technical indicators are mostly positive for stocks, as are the strategies. Market regime indicators show the market is in a Normal economic environment, which is historically positive for stocks, bonds, and gold—but with a substantial risk of a downturn for gold. Normal is one of the best stages for stocks, with limited downside. Volatility is Low and Falling, which favors stocks over gold and then bonds.

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Stocks

After hitting an all-time high just a week and a half ago, the major equity indexes went into another tariff-induced swoon, only to reverse on the Greenland news. Once again, we are presented with a series of higher highs and lower lows that is characteristic of a rising trend. This mirrors the price action we have seen develop repeatedly over the last three years.

One development that does differ from these past trends is the new ascendency of small-cap stocks. As the previous chart shows, since the beginning of the year, the smaller the capitalization weighting, the better the performance. While smaller-cap stocks tend to do better in December and January, they have underperformed for so long that it may be time for them to sustain this breakout throughout the year.

There seems to be less focus on this Wednesday’s Federal Reserve announcement on short-term interest rates. However, it still carries some potential to be disruptive if the Fed does anything other than hold rates at the current level. It is noteworthy that since mid-December, the Fed’s open-market activity has reversed from its long-standing bearish configuration. Instead, the Fed has been in a quantitative easing (QE) mode, adding liquidity to the system through its open-market activity.

Beyond these Fed actions, President Trump recently announced that he has instructed Fannie Mae and Freddie Mac to purchase $200 billion in mortgage bonds. This could have an impact similar to QE as the government buys these bonds and provides more liquidity to the system.

Earnings reports for the fourth quarter have begun to roll in, and the bullish trend here is also obvious. With 100 companies reporting so far, 70% have beaten analysts’ expectations for both earnings and revenue.

The economy remains robust, with third-quarter GDP at 4.4% and a strong 5.4% fourth-quarter tracker. Jobless claims (200,000) and consumer sentiment (56.4) both beat forecasts, signaling resilience despite restrictive rates.

Finally, as the chart below shows, the VIX volatility monitor spiked last week during the European tariff scare, topping the 20% bearish threshold I monitor. However, it quickly reversed and is now approaching a reading of 15, which has been a good buy signal.

The bottom line: The recent tariff faint has worked off some of the market’s overbought condition, as has the sideways move in large-cap stocks. The broadening of the rally to include small-cap stocks is positive for future equity gains, as are the more bullish Fed, earnings, and—as discussed below—a shift to positive political seasonality. That said, if the Federal Reserve throws a curveball Wednesday, it could spark some volatility.

Bonds

Yields broke higher last week as uncertainty over the latest tariff news cast doubt on the U.S. dollar. However, like with the stock market, yields calmed by week’s end, returning to the top of the six-week trading range that preceded the breakout. With the Federal Reserve expected to hold rates steady, a few reassuring words from Chairman Jerome Powell or other Fed governors could be enough to push yields back into that range. Of course, if comments are more hawkish, the breakout may prove to be an early indicator of much higher rates to come.

Although yields have moved above and below their shorter-term moving average since September, it was encouraging that the longer-maturity TLT bond ETF was holding above its weekly moving average. That changed last week, when prices appeared to break down amid geopolitical concerns and a declining U.S. dollar. (See the gold discussion below for more on this dynamic.)

Meanwhile, the high-yield bond market continues to move higher with stock prices. Support from stocks and expectations for lower interest rates have been pushing this hybrid bond higher. As we have noted for more than nine months, the trend continues to favor this asset class in the near term.

Gold

While gold was the worst-performing precious metal for the week, it still gained 8.37%. After hitting 50 all-time highs during last year—roughly one out of every five trading days—gold surged to yet another new all-time high, breaking above the $5,000-per-ounce target of so many analysts. Price targets have since moved higher, with Goldman Sachs now pointing to $5,400 and the London Bullion Market Association’s most recent market survey placing potential upside as high as $7,150.

It was almost a perfect scenario, with reports of declining supply and growing demand:

•  South Africa’s gold production fell sharply by 6.0% year over year in November, a significant drop from October’s revised 0.3% decline. Bloomberg reports that broader mining output also disappointed, falling 2.7% year over year versus expectations of a 5.0% increase, down from a revised 6.1% gain in October, highlighting downside risks to supply and reinforcing tighter precious metals fundamentals.

•  At the same time, gold ETFs saw $5.5 billion in inflows over the past week, largely from North American investors.

The traditional contrarian relationship between gold and the U.S. dollar continued. As the following chart shows, the dollar sold off sharply amid geopolitical tensions tied to tariffs and developments related to Greenland. Even so, it remains above the three-year low reached last September.

Flexible Plan Investments (FPI) is the subadviser to the only U.S. gold mutual fund, The Gold Bullion Strategy Fund (QGLDX). Launched in 2013, the fund is designed to track the daily price changes in the precious metal in a more tax-efficient manner than its ETF counterpart, GLD.

The indicators

The short-term technical indicators of future stock market price changes that I watch are now all positive. Our QFC S&P Pattern Recognition strategy had a 180% exposure to the S&P 500 Index as of Monday’s close.

Our QFC Political Seasonality Index (PSI) strategy had been out of the stock market since its close on January 16, but it returned to a fully invested position at the close on Friday, January 23. It will remain fully invested until February 3. (Our QFC Political Seasonality Index—with all of the daily signals for 2026—is available post-login in our Weekly Performance Report section under the Domestic Tactical Equity category.)

FPI’s intermediate-term tactical equity strategies maintain their positive bias. Classic signal remains long equities. The Volatility Adjusted NASDAQ strategy finished the week at a 120% net long exposure to the NASDAQ 100. Systematic Advantage ended the week 120% net long. Our QFC Self-adjusting Trend Following strategy remains 200% invested. QFC Dynamic Trends also remains 200% invested.

Because the QFC Dynamic Trends, Volatility Adjusted NASDAQ, Systematic Advantage, QFC Self-adjusting Trend Following, and QFC S&P Pattern Recognition strategies can employ leverage, the investment positions may exceed 100%.

FPI’s Growth and Inflation measure—one of our Market Regime Indicators—shows that we are in a Normal economic environment, defined by positive monthly changes in both prices and GDP. A Normal environment has occurred 75% of the time since 2003 and has been positive for stocks, bonds, and gold. Stocks have delivered the highest rate of return in Normal periods, while gold has ranked second but has also experienced high drawdowns.

Our S&P volatility regime is registering a Low and Falling reading, which favors stocks over gold and then bonds from an annualized return standpoint. The combination has occurred 32% of the time since 2003 and has been associated with higher drawdowns for gold.