What to watch in the week ahead

• Gold has hit a new record high above USD 5,000 for the first time, as geopolitical and political risks simmered. Can the precious metal get an additional boost from the Fed's January policy meeting, which concludes on Wednesday? A meeting that paves the way for imminent easing could help the precious metal, which usually benefits from lower rates.
• In recent years, stock market gains have been led by a coterie of tech stocks, the AI7. Will the equity market rally broaden both to other parts of the tech industry and to other sectors in coming weeks and months?
• Worries over the sustainability of Japan's fiscal situation pushed up government bond yields last week, after Japan's prime minister called a snap election seeking a mandate for a fiscal package with additional spending and a delay to planned tax hikes. But will market nerves calm as the government details its plans further?

Can gold rally further following the Fed's policy meeting?

Geopolitical tensions appeared to ease late last week after President Donald Trump ruled out US military intervention in Greenland, reversed course on planned European tariffs, and announced a framework agreement with NATO over Greenland’s future governance. That didn't stop gold from hitting a new record high. The precious metal then gained additional ground on Monday, rising above USD 5,000 an ounce for the first time for a gain of around 18% so far this year, after a revival of geopolitical risks. President Trump threatened to impose a 100% tariff on imports from Canada over a proposed trade agreement with China. Meanwhile, Senate Democrats raised the possibility of a fresh government shutdown over the policing of immigration.

Gold's rally in the first weeks of this year builds on a roughly 65% gain in 2025, its largest since 1979. The question for investors will be whether the precious metal can further extend this advance.

Part of the answer will depend on the pace, and extent, of Fed easing. Reductions in US rates lower the opportunity cost of holding zero-yielding assets, like gold. Investors aren’t expecting any move from the Federal Reserve’s policy meeting this week, which ends on Wednesday the 28th. But they will be looking for clues on when the next move will come. We won’t get an update of the Fed’s economic forecasts, including the dot plot, which charts the forecasts for rates from the top central bank officials. Instead, the focus for investors will likely be on any changes in voting patterns and the tone of the statement. The press conference will also be closely watched, although Chair Jerome Powell now has only three policy meetings left before his term ends in May. It is also unclear if Powell will stay on the Fed’s board as a governor until that term ends in 2028, and whom President Trump will choose to replace him as chair.

We see the Fed on track to cut rates again, as soon as this quarter. However, this is not the only support for gold. Despite the recent détente over Greenland, geopolitical risks remain elevated—including strained US relations with Canada. Additionally, in recent weeks China has again used its dominance in rare earth mineral production in disputes with the US, Japan, and Europe. Demand for gold also remains at multi-decade highs from central banks, as many seek to diversify reserves beyond US dollars. With our base case gold price target of USD 5,000/oz already reached, we are increasingly focused on our upside risk case of USD 5,400/oz.

Can the rise in stocks broaden?

Investors have become accustomed to the US stock market leading the world. 2025 was an exception, with leading European and Asian markets outperforming the S&P 500. But these broader market trends have been eclipsed by the much larger gains for a handful of AI-focused stocks, the AI7, which have appreciated by roughly 200% over the past three years— about five times the gain of the rest of the S&P 500.

A key question for investors in the weeks and months ahead will be whether the rally will broaden within the tech industry and also to other sectors? As with other innovation cycles in the past, we expect market leadership within AI to shift from the companies that enabled the buildout to those that can apply the technology to earn revenue. Meanwhile, the robust US economic environment—with lower interest rates, more stimulative fiscal policy, and potential productivity gains from AI—should also be positive for equities more broadly. We expect growth-friendly policies to lift cyclical parts of the market.

There are also plenty of opportunities globally, in our view. We like equities in Europe, where we expect profit growth to pick up and structural growth trends to continue, and Asia, where China’s continued push for tech independence should continue to drive innovation. To capture the opportunity set, we believe equity investors should look beyond just the large single stocks in AI toward broader AI exposure, other US sectors like health care, financials, and consumer discretionary, and globally to include Europe, Japan, and China.

What comes next for Japanese government bond yields amid fiscal worries?

Japanese government bond (JGB) yields rose sharply last week as Prime Minister Sanae Takaichi’s official call for a snap election of the lower house of the National Diet renewed investor concerns over the country’s fiscal sustainability. Takaichi elaborated on her plans for fiscal stimulus, pledging to strengthen national security, increase investment in various sectors, and suspend the consumption tax on food products for two years. The 10-year JGB yield climbed 8 basis points this week to 2.26%, while the 30-year yield has increased by around 15 basis points to 3.65%. While this was down from the peak for the week, investors will be looking to see if there will be a further retreat.

We see a number of factors that suggest yields are currently overshooting and will move back down over time. First, greater fiscal clarity should restore market confidence, lowering JGB yields. Despite her proposal to temporarily cut the consumption tax on food to zero, Takaichi this week also said the lost revenue will be covered by other measures, to be discussed later, and pledged to maintain the downward trend in Japan’s debt-to-GDP ratio. Second, there are tools the government can utilize to keep yields contained. While the Bank of Japan has not signaled imminent action, Governor Ueda had said that the central bank is prepared to step in if long-end JGB yields deviate significantly from fundamentals, as excessive volatility could threaten systemic stability. Third, Japan’s debt servicing cost to GDP is low compared to other countries. Debt outstanding compared to GDP has also been on a declining trend, albeit still from an elevated level. With the scale of additional fiscal spending compared to the previous year being less than 1% of GDP, we believe Takaichi’s package keeps Japan on a steady path to fiscal consolidation.

So, we expect JGB yields to move back down from current levels over time. We continue to like Japanese equities amid a recovery in corporate earnings and an expansion in return on equity (ROE).