January Wrap Up: Chaos - avoiding the noise and finding meaning

It has been a chaotic start to 2026. Nighttime raids into Venezuela, changes to the US Fed governor and questions around central bank independence, massive rallies and then sell-offs in precious metals, the possible annexation of Greenland by the United States, and tensions in Iran with possible regime change. It has been a lot. Despite all of that, markets eked out a positive start to the year. With so much going on, finding meaning in markets can be hard. To organise our thinking, we focus on the long-term mega forces shaping the world economy and, over the shorter term, the earnings outcomes from the companies you own. 

At the recent Davos World Economic Forum, Canadian Prime Minister Mark Carney delivered an important speech. “We are in the midst of a rupture, not a transition.” He said, noting changes to the world order. “Over the past two decades, a series of crises in finance, health, energy and geopolitics have laid bare the risks of extreme global integration. Great powers have begun using economic integration as weapons.”

Carney’s comments tie into the mega forces framework, the long-term trends that we believe will shape the global economy and markets for many years to come. BlackRock highlights five of these mega forces including the idea of geopolitical fragmentation, which Carney refers to.

While these mega forces act over the long term and will not necessarily drive day-to-day market movements, there was clear evidence of their impact as we start 2026. Chief among these was a continuation of the massive rally in precious metals prices and weakening of the US dollar.

Russell Napier, an interesting thinker and market strategist, spoke on this topic in a recent podcast with Meb Faber. He sees gold as a lead indicator of changes in global geopolitics, “This is what gold's telling us.”  He noted. “There's a new system, there's a new structure, it will have a restriction on the free movement of capital, good for gold, and it will have more inflation, good for gold, and it will have more of the state telling you where you should have your savings, good for gold. That's what the gold price is telling us, these structural shifts that are picking up.”

While gold makes up only a small part of our portfolios, we see it having an important role in managing risk and positioning for the changing world we live in.  But we are also conscious that prices never move in straight lines. To that end, in our most recent asset allocation review, we marginally reduced portfolio exposure to gold. The sharp pullback in prices in recent days may present the opportunity to rebuild this position. Time will tell on that one.

The other element of positioning portfolios for geopolitical fragmentation is reducing portfolio exposure to long-term bonds. Long-term bonds are more susceptible to both inflation and government fiscal policy. These are risks we would rather not take.

While the mega force framework helps anchor our long-term thinking, it’s useful to have shorter term signposts to check in on how our thesis is playing out. The quarterly cycle of company earnings announcements in the United States is one of these.

The good news, and why markets seem more settled than the headlines would suggest, is that company earnings are strong. While not all companies had reported results by the end of January, it looks like the S&P 500 is on track for its fifth consecutive quarter of double-digit earnings gains, with a blended growth rate of 11.9%. This is strong performance from US companies and helps to underpin the market.

Two themes have stood out.

The first of these relates to another of our mega forces, the importance of AI shaping business. AI is beginning to impact profit results. The key comment from management teams is that AI is moving from a period of experimentation to execution. Mark Zuckerberg at Meta summarises it well. "2026 is going to be the year that AI starts to dramatically change the way we work. We're starting to see projects that used to require big teams now be accomplished by a single very talented person."

The second theme is the broadening out of performance. In recent years we have spoken a lot about the magnificent seven, a select handful of technology companies, that have driven both earnings and share price performance of the market.

The spoils of economic growth are becoming more widely spread with not just tech stocks performing well. Industrial companies, like Boeing and GE Vernova have been real standouts this reporting season with both citing AI-driven efficiency gains in supply chain management and predictive maintenance as contributors to their earnings beats.

A broader base for the market is a healthy thing and plays into our strategy of diversifying portfolio exposure away from the magnificent seven towards the emerging markets and infrastructure companies.