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Podcast: Signal over Noise with Ulrike Hoffmann-Burchardi. Apple.Spotify.
Podcast:Jumpstart: Looking ahead to the Fed meeting and the outlook for gold. (5 mins)
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Video: CIO's Gordon vs. Gordon on the Fed, AI, and Davos, live from Hong Kong (9 mins)

Thought of the day

Markets started the week in a cautious mood as investors fretted over a weaker US dollar, the risk of another US government shutdown, and President Donald Trump’s fresh tariff threat against Canada. These headlines add to uncertainty at the start of a week filled with events that could influence the outlook. Gold continued to benefit from "safe-haven" demand, trading above USD 5,000/oz for the first time, taking the precious metal's gain so far this year above 17%.

But while short-term volatility is likely, we maintain our overall positive view toward risk assets, supported by solid earnings growth and expectations of further Federal Reserve easing. We also believe that maintaining a diversified portfolio will help investors navigate markets with greater confidence.

Robust fourth-quarter earnings should boost sentiment. Roughly 35% of S&P 500 companies by market capitalization are set to report fourth-quarter results this week, including several megacap tech companies. We expect tech earnings to be strong, following TSMC’s positive outlook on the durability of AI-related spending. But we also expect earnings growth to broaden across sectors, with cyclical areas of the economy poised to benefit from supportive fiscal and monetary policies. Overall, our S&P 500 earnings growth estimate of 12% this year should continue to underpin equity performance.

Fed policy should remain a tailwind. The Fed is widely expected to hold policy steady this week after three consecutive interest rate cuts last year. While Fed Chair Jerome Powell will likely reiterate the central bank’s data-dependent stance and emphasize that rates are now “within a range of plausible estimates of neutral,” we believe additional evidence of US labor market weakness should allow the central bank to reduce rates again in March, especially as recent data indicate that inflation remains contained. Further easing, together with the lagged effect of earlier Fed rate cuts, should keep the macroeconomic environment supportive for risk assets.

Political and geopolitical uncertainty underscores the importance of portfolio diversification. Much of the US government’s funding is set to expire on 31 January unless the Senate passes a comprehensive package this week. However, several key Senate Democrats have said they will not vote for the appropriations bill following the Minneapolis shooting over the weekend, raising the risk of another government shutdown. Combined with ongoing geopolitical uncertainty, we expect periodic volatility even as markets trend higher.

So, while we continue to recommend that underallocated investors add exposure to stocks amid a broadening rally, we also believe that building a well-diversified portfolio across asset classes, regions, and sectors remains essential. We see value in quality bonds, gold, and capital preservation strategies.