Market Update 2/2/26

By Will Hubbard

Market snapshot

•  Equities: U.S. stocks were volatile but mostly range-bound in the final week of January. The S&P 500 briefly crossed 7,000 for the first time, rising 0.35% for the week. The NASDAQ Composite fell 0.16%; the Dow Jones Industrial Average lost 0.42%; and small-caps lagged, with the Russell 2000 down 2.07%.

•  Fixed income: Interest rates remained steady last week as investors balanced expectations for 2026 rate cuts against still-sticky inflation. The benchmark 10-year Treasury yield rose to 4.24% from 4.23%.

•  Gold and commodities: Gold prices pulled back 1.87% to end the week at $4,894.23 per ounce. Commodities were volatile, with silver experiencing its largest one-day decline since 1980.

•  Market indicators and outlook: Our strategies were broadly bullish, with some levered strategies taking profit early in the week before rebuilding exposure. Market regime indicators continue to show a Normal economic environment, which has historically been 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 Rising, which favors gold over stocks and then bonds.

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Equities

U.S. equities delivered a week defined more by digestion than direction. Early in the week, markets built on January’s strong start, supported by resilient earnings expectations and ongoing enthusiasm around productivity gains tied to artificial intelligence and capital investment. Midweek, the S&P 500 briefly crossed the 7,000 level for the first time, a notable psychological milestone that underscored how far markets have traveled from the volatility of prior years.

As is often the case near new highs, that strength invited a measure of profit taking. By Friday’s close, major indexes softened as investors rebalanced exposures and reassessed risk following a strong January. Technology- and growth-oriented areas saw the most pressure late in the week, while more cyclical and value-oriented segments remained relatively resilient. Bespoke Investment Group noted that the NASDAQ seemed to stall near its October highs, which has proven to be a meaningful resistance level.

From a broader perspective, this type of consolidation should not be surprising. Periods following strong advances often require time for markets to absorb gains and reset before a potential continuation higher.

On the economic front, some data will be delayed or inaccurate due to a partial government shutdown. The Bureau of Labor Statistics announced it is suspending data collection and dissemination until federal funding is restored. Other data releases show the Federal Reserve held the overnight funds rate steady at 3.75%. Unemployment claims were in line with expectations at 209,000 versus a forecast of 206,000. The producer price index was higher than expected on both headline and core measures, rising 0.5% and 0.7% month over month, respectively, compared with expectations of 0.2% for both.

Equity behavior last week appeared consistent with a market that is cautious but not fragile, and optimistic but not complacent. Political uncertainty and data disruptions could create short-term dislocations in markets, but the primary consideration is the improvement in breadth. We’re seeing leadership from sectors beyond Technology, which should help investors feel more confident about market index moves. In January, eight sectors outperformed Technology, and seven outperformed the headline S&P return.

Fixed income

Bond markets reflected this same balancing act. Treasury yields were little changed over the week, with the 10-year Treasury ending at 4.24%. Investors appeared comfortable waiting for additional clarity on inflation and economic growth before making more decisive duration bets. Shorter-maturity yields continued to reflect expectations that policy rates will eventually move lower, but not imminently.

The major news for fixed income investors was President Trump’s nomination of Kevin Warsh to succeed Federal Reserve Chair Jerome Powell. Warsh is a proponent of lowering interest rates, a view President Trump has openly supported. At the same time, Warsh has criticized the size of the Federal Reserve’s balance sheet, calling it “bloated.” In an interview with the Hoover Institution, he said that if the Fed were to “run the printing press a little quieter, we could then have lower interest rates” because excess liquidity has contributed to inflation running above target.

From an allocation standpoint, the current rate environment continues to offer investors opportunities to carefully consider the role fixed income plays in a diversified portfolio. As markets begin to assess how the next Federal Reserve Chairman might approach monetary policy, it would not be surprising to see rates continue their downward trajectory.

Gold and commodities

Gold and broader commodity markets saw a clear shift in tone as the week progressed. Early strength gave way to a sharp pullback into Friday as the U.S. dollar strengthened and investors locked in gains following a strong prior run. The move served as a reminder that even assets often viewed as defensive can experience meaningful short-term volatility, particularly when positioning becomes crowded.

Silver was especially vulnerable following its sharp run-up over the last year. On Friday, silver prices tumbled more than 30%, marking the worst single-day decline since 1980.

Source: Koyfin

Flexible Plan Investments (FPI) is the subadviser to the only U.S. gold mutual fund, the Gold Futures Tracking Fund (QGLDX), formerly The Gold Bullion Strategy Fund. 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

Our QFC S&P Pattern Recognition strategy started the week 180% long. Exposure was reduced to 140% long on Tuesday, then cut further to 80% on Wednesday and 70% on Thursday, before increasing to 120% on Friday’s close. Our QFC Political Seasonality Index remained in its risk-on posture throughout the week. (The QFC Political Seasonality Index—with all of the daily signals—is available post-login in our Weekly Performance Report section under the Domestic Tactical Equity category.)

Our intermediate-term tactical strategies have been varied in their degree of defensive positioning. The key advantage these strategies offer investors is their ability to adapt to changing market environments—participating during uptrends and moving to a defensive posture during downtrends.

The Volatility Adjusted NASDAQ strategy started the week 120% long, reduced exposure to 100% long on Thursday’s close, and increased back to 120% long to end the week. The Systematic Advantage strategy started the week 120% long, cut exposure to 90% on Tuesday’s close, and reduced further to 40% long on Friday’s close. Our QFC Self-adjusting Trend Following strategy started the week 200% long and remained there until Friday’s close, when exposure was reduced to 100% long. These strategies can employ leverage, so their exposure may exceed 100% at times.

Our Classic model was fully risk-on all week. Most Classic accounts follow a signal that can change exposure within a week, though a few remain on platforms requiring up to a month to adjust to new signals.

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 Rising reading, which favors gold over stocks and then bonds from an annualized return standpoint. The combination has occurred 27% of the time since 2003. It is a stage of relatively low risk across the asset classes.