January 19, 2026

“Money follows earnings.”

Jim Craig

Happy Martin Luther King Day.

The US Markets took a breather last week; here are the numbers. The S&P 500 lost .06%, the Dow Jones Industrial Average did slightly worse off. 25%, the Nasdaq was also down .26%. Internationally the news was better, the FTSE 100 finished the week up 1.09% and the MSCI-EAFE gained .70%. The 2-year Treasury yield was 3.524 and the 10-Year paid 4.227%.

All the hubbub starting last week had little effect even though it made a significant contribution to market direction. So, what happened you ask?This time last week, after the market closed, the weekend kicked off with the administration floating the idea of a 10% cap on credit card rates. This generated a flurry of debate for about ten minutes because on Sunday night, news broke that the Fed is being served with a grand jury subpoena. This threatens criminal indictment over Powell’s testimony in front of the Senate Banking Committee about the project to renovate parts of the Fed’s headquarters. Didn’t have that on my bingo card for this year!! Then Chairman Powell issued a response late Sunday that took things to another new level. His key quote: “This new threat is not about my testimony last June or about the renovation of the Federal Reserve building. It is not about Congress’s oversight role; the Fed, through testimony and other public disclosures, made every effort to keep Congress informed about the renovation project. Those are pretexts. The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President.”

If this were 1804, he’d have closed with something along the lines of “…my honor demands this be resolved with pistols at dawn tomorrow!!” But it’s not 1804, and a social media storm is what followed instead (I’m not convinced that’s an improvement). Of course, no one’s mind is going to be changed, especially by a harshly worded letter from former central bankers. But the market’s reaction was awfully muted come Monday morning. There are a few things at play.  First, it’s clear that Treasury Secretary Scott Bessent is not a fan of the idea of taking down Powell legally. He’s probably thinking why not wait until May when Powell’s term is up?  And he’s not wrong. There’s also a perception that the Department of Justice might have acted alone. Finally, what’s really going to matter for the markets and rate policy is who the new Chairman is going to be. Comments from the President on Friday seemed to give the nod to Warsh – certainly the betting markets seem to think so.

As to what drove the markets, Overall, it was a pullback week following recent record highs earlier in January, with all three major indices posting weekly losses in a relatively low-volatility, pre-long weekend environment (markets closed Monday for Martin Luther King Jr. Day). First, earnings season starts and bank results, the fourth-quarter reporting period began with major banks like JPMorgan, Goldman Sachs, Bank of America, and Citigroup. Results were generally solid or better-than-expected in some cases, but reactions were mixed, with some stocks sliding on concerns over forward guidance or broader sector pressures. Financials faced notable weakness, with the S&P 500 financial sector posting its biggest weekly decline since October.

Second, policy pressures from President Trump, significant volatility stemmed from Trump’s social media comments and proposals, including a call for a one-year cap on credit card interest rates at 10% (effective January 20), criticism of high rates and swipe fees, and other edicts like limiting defense company dividends/buybacks or banning large institutional investors from buying more single-family homes. This weighed heavily on credit card stocks (e.g., Visa, Mastercard) and broader financials, contributing to sector rotation away from certain areas.

Third, rising Treasury yields and Fed outlook. Treasury yields climbed to four-month highs (10-year around 4.17-4.227%), driven by resilient U.S. economic data that reduced expectations for near-term Fed rate cuts. This pressured growth stocks and supported a rotation toward more defensive or economically sensitive sectors. Inflation data (e.g., CPI assessments) and delayed economic releases like PPI/retail sales were solid but didn’t spark major shifts. Fourth, sector rotation and tech/bank weakness.  Tech shares (including parts of the “Magnificent Seven”) saw selling pressure, contributing to Nasdaq underperformance in spots, while chip stocks rallied on AI demand (e.g., TSMC’s strong results, boosting related names). Broader rotation favored real estate, consumer staples, and industrials for weekly gains in some cases, with energy and other areas mixed amid geopolitical developments. And finally,geopolitical and commodity influences.  Easing tensions around Iran (Trump softened some warnings) helped oil prices pull back (WTI below $59 at points), while gold and silver hit records earlier but saw profit-taking. Other notes included Trump’s Greenland-related tariff comments and nuclear/AI power themes supporting certain stocks.

The week featured caution ahead of the holiday weekend, profit-taking after prior gains, and focus shifting toward how policy proposals and early earnings would shape the rest of Q1. Markets digested a lot of noise but avoided sharp movements overall.

Foreign markets showed mixed but mostly positive performance last week with many international indices outperforming or holding steadier than the flat-to-lower U.S. benchmarks amid ongoing sector rotations, resilient economic data, and easing geopolitical concerns (e.g., softened U.S. rhetoric on Iran). Global equity funds saw strong inflows, reflecting broader investor confidence despite U.S.-centric policy noise. In summary, foreign markets leaned mildly positive overall outperforming the U.S. in relative terms thanks to better economic resilience, sector-specific tailwinds (tech/AI, defense, cyclicals), and global fund inflows hitting multi-month highs. This contrasted with U.S. caution around policy proposals and bank earnings reactions. Markets remain focused on upcoming data, more earnings, and how U.S. policy themes spill over globally.

Last but not least, Last week mortgage rates continued their recent downward trend, reaching the lowest levels in over three years and providing some relief to the housing market amid broader economic resilience and policy influences (e.g., discussions around government-backed mortgage purchases and Fed outlook). This supported a pickup in refinance and purchase applications, though overall housing activity remained cautious entering the new year. The housing sector showed early signs of improvement but no dramatic surge: Purchase and refinance applications jumped noticeably as rates eased, according to Freddie Mac and MBA data, with refinance volume potentially setting up for stronger activity in 2026. Pending home sales and new listings remained soft (down Year over Year in some reports), influenced by seasonal factors, holiday slowdowns, and lingering “lock-in effect” (homeowners reluctant to sell and lose low pandemic-era rates).

Home prices continued modest upward pressure nationally, though pace slowed vs. prior years. Inventory levels stayed elevated in some markets but below pre-pandemic norms overall, contributing to a “more balanced” but still challenging environment for buyers (affordability issues persist despite rate relief).

Experts forecast a stronger spring buying season in 2026, with gradual rate easing, wage growth outpacing prices, and policy responses potentially adding momentum. However, the market isn’t “off to the races” sales may rise modestly (e.g., 2%+), but high prices and economic uncertainties (e.g., labor market softening) keep many sidelined.

Enjoy your holiday.

Mike