Market Outlook
February 1, 2026
Gold Volatility And Dollar Weakness May Speak To Underlying Concerns
Is it possible that the post-World War II geopolitical world started to unravel last month? While I suspect not, there were changes in market behavior that clearly unsettled pockets of investors here and abroad.
At first blush, markets mostly appeared unflustered in January as one unsettling headline replaced the next. Investors, of course, have a knack for looking past that which appears to be an unquantifiable short-term disruption to the norm. On the other hand, they rarely pass on the opportunity to punish a stock over an earnings miss. One reason why is that you can plug the latter into a trading algorithm though not the former.
Seeing The Forest For The Trees
That idiom came to mind last month (and probably for others) as I weighed rising dollar and gold volatility. On a few unsettling days, stock volatility soared as we glanced at the overnight news on our phones and thought, Wait. What are we doing where? This brings to mind American exceptionalism in its many forms,
which is ultimately the underpinning for the full faith investors put in the U.S. dollar and Treasurys. Indeed, U.S. credit and equity markets derive their long-term strength and stability from the country’s high moral purposefulness — its rule of law, fairmindedness and accountability.
With that lofty view on the table, this is a good time to consider the stock market’s meteoric recovery since the end of Covid. It’s also a good time to think about any downside risk that could become just as disruptive to our lives, the economy and the financial markets, as was that virus a short time ago.
Trade As A Big Stick
1. Last year’s April 2, 2025, Liberation Day tariffs signaled that generations of Free Trade agreements will be discarded or replaced. In the latter case, new agreements must favor U.S. economic (and sometimes military) interests which may or may not stand the test of time.
2. Since last April, big business has pushed back under the cover of darkness, and some of the most onerous tariffs have been walked back. The good news: The White House sometimes listens to business leaders and it certainly pays close attention to financial markets.
3. Nearby and distant friends, allies and trading partners are looking at us differently, while various words and deeds from last month run the risk of turning nascent concern into deep mistrust. Granted, that’s difficult to quantify. Then again, we all have a neighbor we trust with our house key, and some we don’t. Trust is foundational.
4. One of those nascent signs of distrust — and one that could easily be dismissed — is news that a Danish pension fund is selling its $100 million stake in U.S. Treasurys. Why? It didn’t appreciate U.S. saber-rattling in its territory, Greenland. Separately, Sweden has sold $8 billion in Treasurys citing America’s deteriorating credit quality and more recently, reduced predictability in policy.
5. Eight NATO allies (including Britain, France and Germany), warned of a dangerous downward spiral in U.S. relations should President Trump impose tariffs (of up to 25%) if they openly oppose his desire to annex Greenland.
Words Matter
6. America’s relationship with its second-largest trading partner, Canada, probably hasn’t been this fractured since 1812. Prime Minister Carney has warned of a rupture between Ottawa and Washington which has far-reaching implications for our respective aerospace industries, commodities, hydroelectric power, oil, automobiles, tourism, and even the world’s most peaceful 4,000-mile border.
7. Apart from a materially inconsequential Treasury sale, the dollar and gold may actually be the proverbial canaries in the coal mine to a Sell America sentiment that hopefully will not turn into a contagion.
For months, foreign investors have increased their hedging of U.S. dollar exposure (stocks and bonds), and there are reasons to suspect it’s accelerating.
Independence Lost
8. Friday’s selection of a new Fed chair suggests to some that the president is intent on lowering short-term borrowing costs even at the risk of higher inflation. (I think the market got it all wrong last week.)
In response, gold prices plunged 10%, though it can’t be overlooked that the precious metal scored another record high earlier on. Indeed, gold’s brief ascent past $5,000 a troy ounce points to investors desiring a safe harbor asset that is not a U.S. promissory note.
Much Ado About Nothing?
Needless-to-say, financial markets observe all these policy changes, and perhaps they’re actually fine with them, or are farsighted enough to wait for Congress or the next administration to deal with them. It’s impossible to know.
In the meantime, Apple’s blockbuster results in sales and earnings were, in large part, owing to better-than-expected growth in China. That was the result of President Trump’s decision to exempt Apple from reciprocal tariffs which were estimated by Morgan Stanley to reduce its annualized tariff burden to $7 billion from $44 billion. At the same time, Canada’s mistrust of the U.S. has prompted it to form closer economic ties with China, and Europe is expected to follow suit.
Tariffs and other actions have consequences, and so do words. The world is listening and watching, and it’s starting to respond. American exceptionalism may be on the line.
— John Bonnanzio