Closing Recap
U.S. equities wrapped up a fairly uneventful options expiration week modestly lower, with the S&P 500 slipping 0.38% and the Nasdaq retreating 0.66%. While Large Caps stalled, Small Caps (Russell 2000) continued their impressive run, outperforming for the 11th consecutive day (longest streak since 2008) and closing up +0.12% Friday. The real action was in the macro narrative: President Trump signaled he wants to keep Kevin Hassett at the NEC rather than nominating him for Fed Chair.
This “less dovish” signal sent Treasury yields up (10-year +7bps to 4.23%) and triggered a sharp reversal on Friday Gold (-$28) and Silver (-2.5%) as the market priced out aggressive easing. Meanwhile, Oil recovered (+1.60% Fri) as traders weighed easing Iran tensions against a looming supply glut and the DXY hit a monthly high (99.30) as traders trimmed Fed cut bets to just two for 2026.
Key Takeaways (The Week in 60 Seconds)
- Stocks Stall as Small Caps Outperform: Major indices finished a choppy week essentially flat, digesting recent gains. The standout story was the Russell 2000, which outperformed the S&P 500 for the 11th consecutive day—its longest streak since 2008.
- Trump Shakes Up Fed Chair Race: Markets were rattled Friday after President Trump stated he prefers keeping ultra-dove Kevin Hassett at the NEC rather than nominating him for Fed Chair. This reduced bets on aggressive future easing, sparking a rise in yields and the dollar.
- Powell Probe: The DOJ opened a criminal investigation into Jerome Powell over Fed HQ renovations; Powell called it a “pretext” to force rate cuts.
- Global Risk: Trump’s threat to “take control” of Greenland is weighing on the Euro and could strain EU-US relations, risking the Dollar’s reserve status long-term.
- Precious Metals Hit Records, Then Retrace: Gold and Silver both hit all-time highs mid-week (Gold $4,650, Silver $93.75) before pulling back sharply on the Fed Chair news. Silver briefly pushed the Gold/Silver ratio below 50 for the first time since 2012.
- Inflation Remains Sticky: December CPI held steady at 2.7%, while PPI accelerated slightly. Combined with strong Retail Sales and low Jobless Claims, the data supports a Fed pause in January, pushing the 10-Year yield back above 4.23%.
- Bitcoin Recovers Key Ground: Bitcoin posted its third straight weekly gain, reclaiming the $95,000 level. Strong ETF inflows ($1.8B this week) suggest institutional appetite is returning despite the broader macro volatility.
- Yen Crumbles to 158.00: The Japanese Yen weakened past 158.00 per dollar, prompting fierce verbal intervention warnings from Japan’s Finance Minister. The policy divergence remains stark as the BoJ moves slowly while the U.S. economy remains resilient.
- Week Ahead Focus – Central Banks & PCE: A holiday-shortened week (MLK Day) leads into a heavy calendar featuring the BoJ (Fri) and ECB (Thu) decisions, plus the Fed’s preferred inflation gauge, PCE (Thu).
Looking Ahead
The “vibe” for next week is “Davos & Data.” With U.S. markets closed Monday, global attention shifts to the World Economic Forum in Davos, where President Trump is expected to speak. His aggressive foreign policy (Greenland, Venezuela) and feud with the Fed will be front and center. Domestically, the focus is on Inflation (PCE) and the Bank of Japan (BoJ). The market is pricing in a “Hold” for the BoJ on Friday, but with the Yen at 158, the risk of a hawkish surprise or intervention is high. The narrative is shifting from “Aggressive Fed Cuts” to “Monetary Standoff” as inflation remains sticky (CPI 2.7%).
Weekly Market Narrative: The “Hassett Put” Evaporates
Wall Street’s momentum cooled this week as the “Goldilocks” narrative faced a reality check from Washington. While stocks held near highs, the driver of the Friday afternoon volatility was political. President Trump signaled reluctance to nominate Kevin Hassett – a vocal proponent of low rates – as the next Fed Chair, preferring to keep him as an economic advisor. The betting markets immediately slashed Hassett’s odds, causing a swift repricing in bonds and precious metals as the prospect of a politically compliant, ultra-dovish Fed Chair dimmed.
| Index | Last Closing Level | Weekly Change | Weekly Change % | Trend |
| DJ Industrials | 49359 | -83.11 | -0.0017 | Flat |
| S&P 500 | 6940 | -4.47 | -0.0006 | Neutral |
| Nasdaq | 23515 | -14.63 | -0.0006 | Weak |
| Russell 2000 | 2677 | 3.19 | 0.0012 | Bullish |
Despite this, the U.S. economy continues to defy gravity. Retail sales beat expectations, and jobless claims fell to 198k, undermining the case for urgent rate cuts. This economic resilience has fueled a rotation into Small Caps (Russell 2000), which are up ~8% year-to-date, leaving the tech-heavy Nasdaq relatively flat. As we head into a holiday weekend, the market is caught between strong growth (bullish for earnings) and sticky inflation (bearish for multiples).
The Week Ahead: January 19 – 23, 2026
After the MLK holiday, the calendar heats up with three major central bank decisions and crucial inflation data that will refine the Fed’s outlook for the January 28 meeting. Economic Calendar Highlights:
MON (Jan 19):
- US Market Holiday: Markets closed for Martin Luther King Jr. Day.
- Davos World Economic Forum: Global leaders gather; watch for comments on trade and geopolitics (Venezuela/Greenland).
TUE (Jan 20):
- US Supreme Court Ruling? The Court announced it may issue rulings today. Traders are on edge for a decision on Trump’s tariff powers.
- UK Unemployment (Nov): Critical for the GBP; weakness could cement BoE cut bets.
- German ZEW Sentiment: A key read on European economic morale.
WED (Jan 21):
- UK CPI (Dec): Inflation is expected to tick up to 3.3%. A surprise here could rock the Pound.
- Australian CPI: Important for the RBA’s stance.
THU (Jan 22):
- US PCE Inflation (Nov): The Main Event. This delayed release (due to the shutdown) is the Fed’s preferred metric. Analysts warn PCE could run hotter than CPI, potentially spiking yields further.
- US GDP (Q3 Final): Final look at Q3 growth. ECB Policy Meeting: Expected to hold, but minutes/commentary will be scanned for dovish pivots.
- CBRT Decision (Turkey): Expected to cut rates by 150bps.
FRI (Jan 23):
- BoJ Policy Meeting: High Risk Event. The BoJ is expected to hold rates, but with the Yen at 158, Governor Ueda faces immense pressure to signal a hike for March/April. A “dovish hold” could send USD/JPY to 160.
- Global Flash PMIs (Jan): The first look at economic activity for the new year.
Asset Class Spotlight: Commodities, Currencies, Crypto & Treasuries
Precious Metals took a hit this week. A historic week saw Silver smash through $90 to touch $93.75, driven by a physical squeeze and the “Trump Tariff” trade. However, Trump’s comment about negotiating bilateral mineral deals cooled the tariff fear, causing Silver to plunge 7% from highs. Gold followed a similar path, hitting a record $4,650 before the “Hassett Put” evaporated, sending yields higher and dragging the metal back below $4,600. The realization that Hassett (a dove) might not lead the Fed caused a rapid repricing. Silver fell 7% from its record high ($93.75) to settle at $88.53, though the structural shortage in China remains. Gold pulled back to $4,595, while Oil markets remained volatile. WTI rebounded to $59.80 as traders faded the ‘Iran War’ risk but remained wary of a 2026 supply glut.
| Asset | Last Level | Friday’s Change | Weekly Change / Note |
| WTI Crude | 59.44 | 0.25 | +1.6% (Geopolitics Supporting) |
| Brent Crude | 64.13 | 0.37 | Modest Gains |
| Gold (Feb) | 4595.4 | -28.3 | Hit Record $4,650 then fell |
| Silver | 88.53 | -3.81 | Hit Record $93.75 then fell |
| EUR/USD | 1.1596 | -0.001 | -0.70% (3rd Losing Week) |
| USD/JPY | 158.12 | -0.52 | ~1.5% Rise (Intervention Risk) |
| 10-Year Note | 0.0423 | 0.068 | Yields Breakout to Sept Highs |
| Bitcoin | ~$95,000 | Variable | 3rd Straight Weekly Gain |
The “Trump Trade” in FX is back, with the Dollar surging on robust data and Fed leadership uncertainty.
- USD/JPY: The pair is in the danger zone above 158.00. Japan’s Finance Minister Katayama issued a “high sense of urgency” warning. With the BoJ meeting next Friday, the market is daring the Ministry of Finance to intervene. If the BoJ disappoints on Friday, we could see a run at 160 or a “Shock and Awe” intervention.
- EUR/USD: The Euro broke below 1.1600, hitting a six-week low. The divergence is clear: The U.S. economy is accelerating while the ECB warns of “new shocks” and prepares for potential cuts.Trump’s threats regarding Greenland are hurting the Euro sentiment. UBS predicts the pair could fall to 1.20 (sic – likely meant parity or lower context, or 1.12 given trend), but bearish momentum is strong.
- GBP/USD: Flat at 1.3380. Strong US jobs data keeps the Dollar bid. The Pound needs a hot UK CPI print Wednesday to find support.
The correlation between Gold and Bitcoin broke this week. Gold fell on “High Rates” fears, while Bitcoin rose on ETF flows. This suggests Bitcoin is trading on adoption dynamics rather than just macro. The crypto market is showing resilience, posting its third consecutive weekly gain to trade near $95,000. Institutional interest has returned with a vengeance, evidenced by $1.8 billion in weekly ETF inflows. The asset is consolidating just below the psychological $98,000 resistance level; a break above could signal a run back to $100k. Meanwhile, the 10-Year yield breaking 4.23% is a warning sign for equities—if yields push 4.30%, the valuation argument for stocks gets harder.
What to Watch Next Week
- The BoJ & The Yen Trap: Friday is the critical day. The market expects the Bank of Japan to hold, but with USD/JPY at 158, doing nothing is dangerous. Watch for a “Hawkish Hold”—no hike, but a signal that April is a “live” meeting. If the Bank of Japan stands pat and offers no hawkish guidance, the Yen could freefall toward 160, almost certainly triggering physical intervention from the Ministry of Finance. Watch for “check rates” headlines.
- Davos Headlines (Trump vs. The World): President Trump at Davos is a volatility catalyst. Any comments on Greenland, Venezuela, or the Federal Reserve will move markets instantly. Specifically, watch for rhetoric on the Dollar—if he talks it down, the recent DXY rally could reverse.
- Fed Chair Sweepstakes: With Hassett seemingly out, does Trump pivot to Kevin Warsh (more traditional/hawkish) or a dark horse? The uncertainty is keeping a floor under the Dollar and weighing on bonds.
- PCE vs. CPI Divergence (Thursday): Thursday’s PCE report is dangerous because this is the data point the Fed cares about. Analysts expect it to run hotter than CPI (near 3%). A high print here confirms the “No Cut in January” thesis and could push 10-year yields toward 4.30%, putting pressure on the Nasdaq. If Core PCE stays sticky near 3%, the “Fed Pause” in January is locked in, and March cut bets will fade.
- Supreme Court Tariff Ruling (Tuesday?): The Court announced it may issue a ruling Tuesday. If they validate Trump’s emergency tariff powers, the “Trade War” trade is back on: Short Retailers/Importers, Long Dollar.
- Bitcoin $100k Watch: With $1.8B in inflows and a technical breakout above $95k, the path to $100k is open. However, if the stock market wobbles on higher yields, Bitcoin could face profit-taking. Watch the $98,000 resistance level closely.
- Silver Volatility: After a 30% run and a sharp Friday correction, Silver is in a highly volatile discovery mode. Watch the $88 level; holding it keeps the squeeze narrative alive.