Global financial markets began the year on a positive, albeit volatile, note as geopolitical uncertainty intensified. Investor sentiment was tested by a series of unpredictable policy developments from the Trump administration, which added to short-term market noise.
Events in Venezuela contributed to turbulence in commodity markets, while renewed tariff threats towards certain European nations weighed on broader risk appetite. Despite this backdrop, equity markets proved resilient, supported by constructive economic data and expectations of easing financial conditions later in the year.
A weaker US dollar and continued diversification away from US-centric exposures supported performance across Asia and Emerging Markets. Japanese equities stood out as a key outperformer, benefiting from improving domestic prospects and renewed investor interest.
Geopolitical Noise
Geopolitical uncertainty played a significant role in shaping market sentiment during January. Tensions rose following developments in Venezuela and increasingly assertive rhetoric from the Trump administration regarding trade and foreign policy, particularly in relation to Europe.
Concerns over potential tariffs and a more strained transatlantic relationship initially weighed on European markets. However, sentiment improved later in the month after US officials ruled out more extreme measures, allowing risk assets to recover and finish January higher.
While geopolitical developments continue to generate short-term volatility, markets have increasingly learned to look through headline risk, focusing instead on economic fundamentals and policy outcomes.
US Federal Reserve Independence
Attention also turned to the US Federal Reserve, as President Trump reiterated his view that interest rates should be materially lower. This was followed by the launch of a Department of Justice investigation into Federal Reserve Chair Jerome Powell, which many observers interpreted as a challenge to the Fed’s independence.
Chair Powell responded firmly, emphasising the importance of maintaining central bank autonomy. Importantly, there was no indication that the investigation would alter the path of US monetary policy, a view reinforced by the Fed’s decision to leave interest rates unchanged at its January FOMC meeting.
With Chair Powell’s term ending in May, President Trump announced former Fed Governor Kevin Warsh as his preferred successor, subject to Senate approval. Given Warsh’s historically hawkish stance, the announcement prompted a repricing of US interest rate expectations, supporting the dollar and pushing government bond yields higher. This shift also weighed on dollar-sensitive precious metals, which experienced heightened volatility over the week.
Performance and Portfolio Positioning
January highlighted the benefits of maintaining a diversified portfolio as regional performance diverged. While US equity markets delivered positive returns, they were outperformed by several peers as investors continued to reduce exposure to highly valued technology stocks.
Japanese equities were the strongest-performing developed market, supported by political developments and expectations of increased fiscal stimulus. In contrast, Japanese government bonds declined, contributing to broader weakness in global fixed income markets amid concerns around rising fiscal deficits.
In commodities, developments in Venezuela kept energy and natural resource markets in focus. Exposure to natural resources within the Long Hold Growth-focused portfolios proved a key contributor to performance. Although precious metals faced headwinds later in the month as the US dollar strengthened, this did little to offset the positive contribution from natural resources and absolute return strategies over the period.
Past performance cannot be used as a guide to future performance and the value of your investment will fall as well as rise in value. You may not get back all your investment and the final value of your investment will depend on the performance of your portfolio. The actual performance of an individual client’s portfolio may differ due to different funds being used and being restricted in relation to certain asset allocations. Performance figures quoted include fund manager charges but exclude adviser, discretionary, custodian and switch charges. Unless stated, income is reinvested into the portfolio. The information contained in in this document is for information purposes only. It does not constitute advice or a recommendation or an offer or solicitation for investment. OCM Wealth Management Limited is authorised and regulated by the Financial Conduct Authority (FCA Registration No: 418826) OCM Asset Management is a trading name of OCM Wealth Management Limited
