Volatility fades as markets refocus on fundamentals

Transcript

Hi, I'm Paul Adam, global chief investment strategist here at Russell Investments, and this is market weekend review for the weekend ending January 23rd, 2026. Uh, this has certainly been a volatilityheavy week in financial markets, but also one with a lot of um focus, excitement in Seahawks jerseys around the office going into the NFC Championship game uh this weekend. Uh, go Seahawks. From a financial market perspective, a lot of that volatility I was talking about was driven by developments in geopolitics. So over the weekend, we had the US administration proposed new tariffs on a number of European countries around its ambitions towards uh Greenland, but following some conversations in Davos, those tariffs were ultimately suspended, the situation seems to have calmed down. Uh and that's created a sort of almost 180 and U-turn in financial markets. So peaked a trough early in the week. The S&P 500 index was down uh almost 2%. We're now back close to all-time highs again into what continues to look like a pretty sound fundamental picture for both the global business cycle and corporate earnings. Uh the second uh development this week that was of focus for us was developments around the US business cycle. Uh and two things stood out there. First, we had an upgrade to estimated US real GDP growth in the third quarter. uh revised up to 4.4% which is a pretty punchy number from a historical perspective. Maybe even more important than that though, there's been a lot of focus on the labor market uh this low hire low fire labor market regime that we've been in now for several months. This week uh both initial jobless claims and continuing jobless claims surprised positively suggesting that maybe the labor market is starting to stabilize here. uh which would be really good news and consistent with our expectation of a pretty healthy economy over 2026 uh that could potentially even be accelerating over the next couple of quarters. Uh third and finally uh Japan's really been in focus this week uh if not for the last couple of months now. Uh there's been a push towards uh considering more fiscal stimulus from the Japanese government that's been pressuring Japanese government bond yields higher uh at the long end of the curve. Now, those yields are about as high as they've been since the late 1990s, which has been a pretty notable and remarkable trend out of Japan. Uh, but sitting here on Thursday's close, um, we started to see some stability into the market again. Now, uh, particularly after the finance minister came out and said that they've taken steps to stabilize the market and will continue to do so. That helped to put a floor under investor sentiment not only in Japan but across global fixed income markets as well. That has been encouraging to see. So, those were the key developments this week. Thanks for tuning in. >> Hi, I'm Sophie Antaly, head of portfolio and business consulting at Russell Investments. If you liked what you just saw and heard, consider subscribing to our YouTube channel or check us out on LinkedIn. Thanks for tuning in.

Key takeaways

Markets swing on geopolitical headlines
U.S. labor market shows signs of stability
Japanese bond yields hit multi-decade highs

Markets rebound as tariff fears ease

It was a volatile week in financial markets, largely driven by geopolitical developments. Last weekend, the U.S. administration proposed new tariffs on several European countries linked to tensions around Greenland. However, following discussions at the World Economic Forum in Davos, those tariffs were ultimately suspended, helping to calm investor nerves.

Markets reacted swiftly to the shifting headlines. At its low point earlier in the week, the S&P 500 was down nearly 2% before rebounding sharply and ending the week close to all-time highs. In our view, the speed of the recovery underscores that the underlying fundamentals—both for the global business cycle and corporate earnings—remain sound.

Signs of stability in U.S. labor market

Developments related to the U.S. business cycle were also in focus. First, U.S. real GDP (gross domestic product) growth for the third quarter was revised higher to an annualized pace of 4.4%, a notably strong number by historical standards.

More important, however, were fresh signals from the labor market. The U.S. has been operating in a “low-hire, low-fire” environment for several months, but this week both initial and continuing jobless claims surprised to the downside. This suggests labor market conditions may be stabilizing, which would be a positive sign for the broader economy.

We see these trends as consistent with our expectation of a healthy U.S. economy through 2026, with the potential for growth to reaccelerate over the coming quarters.

Japanese bond yields in focus

Japan has also remained in the spotlight. Expectations of additional fiscal stimulus have pushed long-term Japanese government bond yields higher, with yields reaching their highest levels since the late 1990s earlier this week.

By Thursday’s close, however, the situation appeared to stabilize after comments from Japan’s finance minister saying the government is taking active steps to stabilize the bond market. That reassurance helped to put a floor under sentiment—not only in Japan, but across global fixed-income markets more broadly.

Watch

Listen