Markets Deal with Record Highs vs Trump Headlines, FOMC and Mag7 Earnings Ahead

On the one hand, risk appetite seems soothed by the proximity of benchmarks’ proximity to record highs – like the Dow. On the other, heavy and dramatic headlines sow a clear unease. Will event risk like the FOMC decision and Mag 7 earnings change this standoff? 

Talking Points:

• Market conditions are punctuated by benchmarks like the S&P 500 and Nasdaq 100 at record highs, but headline fear around events like Greenland raise serious concern
• A ‘sell America’ concern seems a global headline, Japan’s financial pressure is an underappreciated issue and more traditional event risk will compete for attention
• Top event risk over the coming week includes: a contentious FOMC decision and Powell statement; Mag 7 earnings and Q4 GDP releases from the likes of the Eurozone

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Market Conditions Favor Breaking News Over Themes But Headline Whiplash and Fatigue is Real

Whether you are a trader, an investor or merely a market observer; our focus is often trained on answering the question ‘what is moving the market’. Being able to identify what the prevailing driver behind the collective view around the capital markets at any given time can help us to determine when a market is due to change its direction or tempo or establish whether conviction –whether that reflects momentum or inertia – is reliable or a misleading interlude. 

If pressed to highlight what is steering the market at present, it would be more reasonable to flag that headlines are more influential than traditional macro themes powered by scheduled event risk. We can see that skew in the broad (but short-lived) bout of volatility experienced this past week. The swell in fear was not found in events like the IMF’s updated economic forecast, the dated US PCE deflator or the January PMIs. Rather, the focus was clearly on the headline splashing the threats and subsequent backtracking made by US President Donald Trump around the his country’s unwavering interest in Greenland.

Scale of Risk Appetite Direction and Intensity  

Source: John Kicklighter

When it comes to the markets, the collective is particularly good at projecting reasonable scenarios and discounting the range of possible scenarios. This generally helps to deflate volatility around predictable – or probable – fundamental event risk. With a scheduled event or typical theme, that is a straightforward endeavor. Establishing a reasonable scope and scenario table around what matter is top of the list for the Trump Administration is anathema to the practical approach to tracking issues in advance and making sense of the landscape. 

As such, we have seen the benchmark capital market assets ‘suffer’ a jolt of implied volatility this past week which was quickly bled off after the President softened his threat of military intervention as an option to achieve designs on Greenland – along with the economic threats made against the Eurozone – but that quick return to complacency should not be taken as a sign of resiliency. Headline fatigue is a real state to operate by, but it is not a reliable anchor on the risk tolerance of the financial market. A well (or ‘ill’) placed, unpredictable catalyst could easily find the markets over-extended and exposed against a backdrop of serious and underappreciated matters – like the erosion of confidence in the world’s benchmark safe haven, US Treasuries. If pressure arises and questions around our foundation are posed, the floor is not particularly even nor robust.

 

Breakouts are More Prevalent with a Need to Focus on Indices and Yen Crosses 

Determining what kind of approach to have when returning to the market’s next week, we should combine an assessment of underlying conditions with individual target assets’ technical pictures and the fundamental backdrop - both broad-market thematic drivers and discrete scheduled event risk. Zooming out on the global markets, the fifth week of the year tends to generate a peak in volume (using the S&P 500’s past 75 years as a proxy) and volatility tends to rise. That is owing to the typical scheduling of rate decisions, US earnings session activity and key economic series (such as global quarterly GDP updates). Reflecting on the current trend in conditions, many of the benchmarks for risk appetite are at or near highs; but their correlation is starting to flag as preferences reflect doubt and heavily discussed record highs on some safe havens undercuts the comfort of maintaining a risk-on perspective. 

So, while we may be in easy reach of record highs for the likes of global equity indices, the congestion or crawl higher they have experienced stands as ready a feature of our environment. That makes for poor conditions for those looking for momentum-backed trends (unless there is a long time horizon) and it potentially more dangerous for those seeking stable ranges. The threat of further head-line derived charges of volatility can readily clear tight technical patterns. In this environment, conditions seem to setup breakouts; but follow through depends on what triggers the initial move and whether it has staying power.

For markets that global macro observers should keep tabs on – whether for opportunities themselves or insight on the bigger picture – the major US indices are still a must-watch area. There is buoyancy across most major equity markets across the world, but the headlines and conversation around the American connection to the globe is a standout macro theme. Worldwide search interest in ‘Sell America’ has surged well beyond the peaks of last April’s reciprocal tariff headlines and President Trump’s first term trade war efforts.  

This makes indices like the S&P 500, Nasdaq 100 and Dow the convergence point of general ‘risk appetite’, fundamental reflection of macro growth factors and potential systemic diversification pressures. For shorter term and more detailed insight into the larger themes, it is still worth reviewing ratios of the major indices: S&P 500 to the RSP ETF; Nasdaq 100 to Dow; S&P 500 to the VEU ETF, etc.  For similar macro insight, gold and key Dollar pairs can prove important bellwethers to the thematic tempo. Further, given threat of intervention by Japanese financial authorities, USDJPY would offer even more fundamental depth.

Chart of Google Search Scale for ‘Sell America’, ‘De-Dollarization’, Alternative to Dollar’ (Daily)  

Source: Google Trends

 

Most Recognizable Event Doesn’t Translate to the Most Effectively Market Moving

With the backdrop tuned to headlines projecting unexpected but potentially systemic shifts in the fundamental backdrop, there may very well be a level of reticence to response to the major event risk on the economic docket ahead. That includes catalysts that are historically reliable in generating significant volatility: like the mega cap US corporate earnings releases and FOMC rate decision that we have in the middle of the week. That doesn’t mean that these events will go unnoticed by financial media or traders, rather it sets the threshold for stoking meaningful market traction higher or sets a skew around which outcome would be more market moving – such as tech earnings falling short of expectations and undercutting a weakening conviction of holding exposure at record levels.

Calendar of Top Global Macro Event Risk
 
Source: John Kicklighter

 

Markets More Interested in Fed Chairman’s Press Conference than Rate Decision

Among the top events to keep particular track of this week, the Federal Reserve’s first rate decision of 2026 ranks right at the top of the list. Looking at the Fed Funds futures market and the shorter end of the Treasury yield curve, the market seems to be very confident that the central bank will hold steady at this meeting following December’s cut its rate band to a 3.75 percent upper bound. According to the CME’s FedWatch, the probability of a hold is a robust 95 percent. That is a reasonable consideration given Fed officials’ efforts before this meeting’s media blackout to vocalize a ‘data-dependent’ path and highlight the fact that inflation is still elevated. Further, in the previous Summary of Economic Projections (SEP), the group’s forecast on rates through 2026 called for only one further -25bp rate cut. 

Of course, that outlook mean was stretched over a range from a possible 25bp hike to -150bps in further reduction. Normally, we would parse small details of language to better tune forecasts, but this event is likely to prove much more straightforward. Following the US Department of Justice’s announcement of an investigation over Chairman Powell’s Congressional testimony on Fed buildings’ renovations and his subsequent statement video suggesting political pressure in response to the central bank’s bearing, the debate around Fed independence no longer seems merely academic. This more dominant aspect of the event will put more emphasis on the official policy statement and much more on the Powell’s press conference half an hour later.

Table of FOMC Elements, Outcomes and Market Impact

Source: John Kicklighter

 

Tech Earnings Have Recognition Power but Thematic Scale May Be Left Wanting

Chronologically this week, the big ticket earnings will begin before Wednesday afternoon’s FOMC decision. That said, the wider market capacity of Tuesday’s and Wednesday listings will more likely be dampened by the anticipatory force of Wednesday’s concentrated headlines. Before the afternoon session Wednesday, the corporate docket will have blue chips Boeing and UnitedHealth Group. The Trump administration’s pressure on drug prices will be a theme to read into he latter, but the threat made to defense contractors paired against the projected increase in spending will make discussion around the former’s outlook much more interesting. 

That is also true for Northrop, RTX, General Dynamics and Lockheed (a Thursday release) forecasts. As forward looking as that theme is, the headlines and market impact are still more likely to favor the tech-leaning, market cap leaders due to report: Microsoft, Meta and Tesla after the bell Wednesday as well as Apple post close Thursday. The AI engine has notably flagged these past months, but it still carries significant weight in expectations. These four companies are also approximately 16 percent of the S&P 500’s aggregate market cap, which gives it significant influence capacity even if the theme isn’t the leading driver.

Chart of Implied Volatility for Key Stock Ticker Earning with Mag7 Highlights

Source: SpotGamma

 

A Preference for ‘Backwards Looking’ GDP – But Official – Figures?

Throughout the coming week, we have data points that will either directly or indirectly offer insight into the current and expected course of economic activity. In addition to earnings, we have: sentiment surveys littered throughout, lending data, trade updates, PMIs and upstream employment stats. There is something to be said about the forward looking or upstream measures’ value for shaping the forward-looking oriented convictions of the wider markets. However, the distractions from other themes such as Trump-related headlines or conflict via traditional means like monetary policy along with the variation of opinions around the forecasts can shift the weight of influence onto backward looking but more headline-capable events like official quarterly GDP statistics. 

We have already taken in China’s, Singapore’s and South Korea’s first Q4 readings to general growth but mixed relative to forecasts for APAC. This week, we have the Eurozone and major components, Taiwan and Mexico due to report their advanced quarterly readings on Friday. All three of these have been in the news for their trade relations with the United States, which could add a different angle to a mere update on their economic health which in turn amplifies global interest.

Chart of United States, Eurozone, Mexican, Taiwan GDP, Year-over-Year (Quarterly) 

Source: TradingView.com; US BEA; Taiwan NSB; Mexico INEGI; EuroStat

 

-- Written by John Kicklighter, Global Head of Content

 

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