If the S&P 500 were a newsreel, the week ending January 30, 2026, was the moment the projectionist gently tapped the brakes—not because of an obstacle, but because he wanted to see if the people were still paying attention. While the gauntlet of headline news would lead you to believe it was a purely volatile week, the markets were actually surprisingly wise. The S&P 500 posted a weekly return of +0.35%, bringing its YTD gain to 1.45% to kick-start 2026.
Yes, underneath the covers, it was a bit more of a “choose your own adventure” story. Technology (led by MSFT) and Financials (led by JPMorgan and Berkshire) took a breather, declining by -1.63% and -2.03% respectively for the month. However, the market finally showed the breadth investors have been begging for. Communication Services surged +4.52% (fueled by Alphabet), Industrials jumped +8.09% (shoutout to Caterpillar and Boeing), Energy skyrocketed +14.12% (Exxon and Chevron leading the charge), and Basic Materials gained +9.55% (thanks to Linde and Newmont).
The Fed, The Nominee, and the Noise “Wash-out”
As expected, the FOMC held its benchmark funds rate at 3.5%–3.75%. The Fed cited expectations of solid growth and the view that near-term, tariff-fueled inflationary boosts will ultimately recede. However, the data they are staring at is getting “spicy.” The Producer Price Index (PPI) for December showed headline wholesale inflation jumping 0.5%, well above the 0.2% expected. On an annual basis, headline PPI sits at 3.0%. Even more concerning was Core PPI, which surged 0.7% in December (vs. 0.0% in November), pushing the annual rate to 3.3%.
Despite the inflation heat, the manufacturing engine is humming. Durable Goods Orders rose a massive 5.3% to $323.79B, crushing the 3.1% estimate, with new orders up 12.3% YoY. Factory Orders also exceeded expectations at +2.7%.
The cherry on top of the policy cake was President Trump’s surprise nomination of Kevin Warsh as the next Fed Chair. A veteran of the 2006–2011 crisis and a Hoover Institution fellow, Warsh brings a “crisis-tested” résumé to the table. His nomination, paired with the PPI data, suggests the era of “easy money” is staying in the rearview mirror for now.
While factories are busy, consumers are feeling the pinch. Consumer Confidence cratered in January, falling 9.7 points to 84.5—the lowest reading since May 2014. It seems the “vibecession” is back, likely driven by those nagging PPI numbers trickling down to the checkout counter.
However, the labor market remains the economy’s primary anchor:
Productivity: Nonfarm productivity grew at a blistering annualized rate of 4.9% in January.
Jobless Claims: Initial claims decreased to 200K (beating the 202K estimate), while continuing claims fell to 1.85M.
Tensions and Triumphs
The geopolitical landscape saw a “good cop, bad cop” routine with our neighbors to the north. Canada negotiated a deal to lower tariffs on Chinese EVs in exchange for greater access to the Chinese market for Canadian farm products. President Trump’s response? A threat of 100% tariffs on Canada, reminding everyone that trade deals in 2026 are anything but permanent.
On the earnings front, NVIDIA and Google maintained their AI crown, clocking monthly gains of +2.48% and +7.99% respectively. Meanwhile, the “miss” list grew as Apple, Microsoft, Tesla, Broadcom, and UnitedHealth all slipped following cautious guidance.
Speaking of ripples, silver futures plummeted over 30% on Friday to settle at $78.53. It was the metal’s worst day since March 1980, but let’s keep perspective: even after that haircut, silver is still up over 15% YTD.
February’s Opening Act
The first week of February is another week of headline news—the financial equivalent of a double-espresso shot.
Major Economic Releases: All eyes are on Friday’s Unemployment Report and the ISM Manufacturing & Services PMIs to see if the “solid growth” narrative holds water.
Corporate Earnings: The tech gauntlet continues with Alphabet (GOOGL) and Amazon (AMZN) reporting, alongside healthcare titans like Eli Lilly and Amgen.
On Fed independence in monetary policy, “I believe in the operational independence and the conduct of monetary policy as a political economy matter. I think the economy is better off if the world perceives, markets perceive, members of Congress perceive. You got central banks that are calling it the best they see it. Being a central banker is not a prize for the perfect. These are hard jobs. Lots of uncertainty. The data is a mess. But the world's better off if they think they're doing their level best to call balls and strikes. But the operational conduct of monetary policy doesn't mean that the Fed shouldn't be criticized. Central bankers should not be pampered princes.”
— Kevin Warsh, 2026 nominee to chair the Federal Reserve Board of Governors, Reagan Economic Forum, May 30, 2025
Soap Bubbles: Central Banks often have difficult relationships with governments
By Ben Ashby, PM, Fixed Income Strategist
The current handwringing over the sanctity of the Federal Reserve’s independence is, to put it mildly, a bit like watching a long-running soap opera and pretending this is the first time the lead characters have had an affair. The audience knows what is going to happen, but the principal three characters go through the motions, apparently oblivious to what has occurred in previous episodes, because the script demands it.
In this particularly hackneyed drama, the three characters are the President, the Federal Reserve, and the Market. And the plot is about who is in a relationship with whom, who will be unfaithful first, when the jilted one finds out, and how bad the breakup is.
Excuse my old-world cynicism, but in my long experience of international investing, the "independence" of the central bank has often been more a polite suggestion than a hard rule. The Fed is, alas, no different, and it’s worth remembering that the desire for a "sympathetic" ear at the Fed is not a modern populist invention. It is, in fact, almost an American tradition, though significantly more expensive.
Alas, and therein lies the problem. It often feels like a soap opera you can safely ignore until you find out everybody is talking about it, and it has entered public discourse. And unlike your standard soap opera, the big breakup has real-world consequences, as history shows.
The Ghost of Arthur Burns
The gold standard for "sympathetic" Fed Chairs remains Arthur Burns. When Richard Nixon appointed Burns in 1970, he didn't just want a competent economist; he wanted a wingman. Nixon, still haunted by his 1960 loss, which he blamed on tight monetary policy, was crystal clear: he needed the economy humming for the 1972 election.
Burns, despite his academic pedigree and pipe-smoking gravity, obliged. He kept the monetary spigots wide open, ignoring the rising steam of inflation. Nixon got his landslide victory, and the American public got a decade of "Stagflation.”
For sheer dramatic tension, nothing beats the high noon showdown at Johnson’s ranch. Despite his “unique” style, Trump is positively cuddly compared to Lyndon B. Johnson, who once literally drove Fed Chair William McChesney Martin to his Texas ranch and allegedly physically attacked him for raising rates. LBJ’s philosophy was simple: “My boys are dying in Vietnam, and you’re raising interest rates.” Even Harry Truman tried to bully the Fed into keeping rates low to service WWII debt, leading to the 1951 Treasury–Fed Accord, the very document that was supposed to end this kind of political speed-dating.
The Price of "Sympathy"
The problem with a "sympathetic" Fed is that sympathy is usually directed toward the politician’s re-election prospects rather than the economy's needs. When a President successfully installs a dove to juice growth, they are essentially trying to defy the primordial forces behind the economy.
As we’ve seen time and again—from the 1970s to the post-2008 "New Normal"—lowering rates into an already warm economy doesn't just create growth; it often creates bigger problems. It often fuels asset bubbles and, eventually, consumer price inflation. By the time the political "win" is secured, the inflationary genie is out of the bottle, and the Fed is forced to eventually play the villain, raising rates far higher than they would otherwise have needed to.
It is the monetary equivalent of eating an entire chocolate cake for breakfast; the rush is fantastic, but the 2:00 PM crash is inevitable. Do it for long enough, and a miserable period of dieting is inevitable.
History Doesn’t Repeat, but it Does Rhyme
We are currently in a cycle where political pressure on the Fed is once again becoming "vocal." Whether it’s through public jawboning or the appointment of "loyalists," the goal remains the same: lower rates to facilitate deficit spending and goose the markets. History suggests they will likely succeed in the short term, and we will likely pay for it in the long term.
The question is, what to do about it?
If we are entering an era of "fiscal dominance" where the Fed is more a passenger than a driver, changes to portfolios are likely to be required. These would be the broad strategies I would consider:
Shorten Duration: If the Fed is being pressured to keep rates low while inflation remains sticky, the "long end" of the bond market will eventually revolt. Long-term Treasuries are essentially a bet that the Fed will remain a disciplined inflation hawk. If that discipline is in doubt, you don't want to be holding the 30-year. Favor the shorter end of the curve—less sensitivity to the inevitable rise in term premia.
Buying TIPS (Treasury Inflation-Protected Securities): If the "sympathetic" governor succeeds in lowering nominal rates while inflation rises, real yields will tank. TIPS provide a direct hedge against the "Burns-ian" outcome. They are the insurance policy for when the "transitory" narrative inevitably fails for the second time in a decade.
The Curve Steepener: In a regime where the Fed keeps short-term rates artificially low (the "front end") while the market realizes inflation is running hot (the "long end"), the yield curve tends to steepen. Here, certain structured ETFs may prove attractive.
Diversify Internationally: Often, once the Central bank loses control of medium- and longer-term rates, problems across other assets begin to manifest as the effective cost of capital rises.
In essence, watch the politics but trade the maths (it’s plural in British English, forgive me). This is important, as just because the Fed has a new governor doesn’t mean there will be an immediate change in policy.
In fact, the Fed is almost unique in the pretence of unanimity among the voting members. Open disagreements, rather like public arguments between couples, are more common in Europe. We are just more relaxed about these things, or the fact that the economy is flatlining, and we have nothing better to do. I get confused.
If the Fed does become more "sympathetic," your portfolio should become "defensive." We’ve seen this soap-opera plot before; the ending is often the same, and it's often best to switch the channel early.
Advisory services offered through Sowell Management, a Registered Investment Advisor. The views expressed represent the opinion of Sowell Management. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and non-proprietary sources that have not been independently verified for accuracy or completeness. While Sowell Management believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sowell Management’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.
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WEEK AHEAD
February 2-6, 2026
Soap Bubbles: Central Banks often have difficult relationships with governments
By Ben Ashby, PM, Fixed Income Strategist
The current handwringing over the sanctity of the Federal Reserve’s independence is, to put it mildly, a bit like watching a long-running soap opera and pretending this is the first time the lead characters have had an affair. The audience knows what is going to happen, but the principal three characters go through the motions, apparently oblivious to what has occurred in previous episodes, because the script demands it.
In this particularly hackneyed drama, the three characters are the President, the Federal Reserve, and the Market. And the plot is about who is in a relationship with whom, who will be unfaithful first, when the jilted one finds out, and how bad the breakup is.
Excuse my old-world cynicism, but in my long experience of international investing, the "independence" of the central bank has often been more a polite suggestion than a hard rule. The Fed is, alas, no different, and it’s worth remembering that the desire for a "sympathetic" ear at the Fed is not a modern populist invention. It is, in fact, almost an American tradition, though significantly more expensive.
Alas, and therein lies the problem. It often feels like a soap opera you can safely ignore until you find out everybody is talking about it, and it has entered public discourse. And unlike your standard soap opera, the big breakup has real-world consequences, as history shows.
The Ghost of Arthur Burns
The gold standard for "sympathetic" Fed Chairs remains Arthur Burns. When Richard Nixon appointed Burns in 1970, he didn't just want a competent economist; he wanted a wingman. Nixon, still haunted by his 1960 loss, which he blamed on tight monetary policy, was crystal clear: he needed the economy humming for the 1972 election.
Burns, despite his academic pedigree and pipe-smoking gravity, obliged. He kept the monetary spigots wide open, ignoring the rising steam of inflation. Nixon got his landslide victory, and the American public got a decade of "Stagflation.”
For sheer dramatic tension, nothing beats the high noon showdown at Johnson’s ranch. Despite his “unique” style, Trump is positively cuddly compared to Lyndon B. Johnson, who once literally drove Fed Chair William McChesney Martin to his Texas ranch and allegedly physically attacked him for raising rates. LBJ’s philosophy was simple: “My boys are dying in Vietnam, and you’re raising interest rates.” Even Harry Truman tried to bully the Fed into keeping rates low to service WWII debt, leading to the 1951 Treasury–Fed Accord, the very document that was supposed to end this kind of political speed-dating.
The Price of "Sympathy"
The problem with a "sympathetic" Fed is that sympathy is usually directed toward the politician’s re-election prospects rather than the economy's needs. When a President successfully installs a dove to juice growth, they are essentially trying to defy the primordial forces behind the economy.
As we’ve seen time and again—from the 1970s to the post-2008 "New Normal"—lowering rates into an already warm economy doesn't just create growth; it often creates bigger problems. It often fuels asset bubbles and, eventually, consumer price inflation. By the time the political "win" is secured, the inflationary genie is out of the bottle, and the Fed is forced to eventually play the villain, raising rates far higher than they would otherwise have needed to.
It is the monetary equivalent of eating an entire chocolate cake for breakfast; the rush is fantastic, but the 2:00 PM crash is inevitable. Do it for long enough, and a miserable period of dieting is inevitable.
History Doesn’t Repeat, but it Does Rhyme
We are currently in a cycle where political pressure on the Fed is once again becoming "vocal." Whether it’s through public jawboning or the appointment of "loyalists," the goal remains the same: lower rates to facilitate deficit spending and goose the markets. History suggests they will likely succeed in the short term, and we will likely pay for it in the long term.
The question is, what to do about it?
If we are entering an era of "fiscal dominance" where the Fed is more a passenger than a driver, changes to portfolios are likely to be required. These would be the broad strategies I would consider:
In essence, watch the politics but trade the maths (it’s plural in British English, forgive me). This is important, as just because the Fed has a new governor doesn’t mean there will be an immediate change in policy.
In fact, the Fed is almost unique in the pretence of unanimity among the voting members. Open disagreements, rather like public arguments between couples, are more common in Europe. We are just more relaxed about these things, or the fact that the economy is flatlining, and we have nothing better to do. I get confused.
If the Fed does become more "sympathetic," your portfolio should become "defensive." We’ve seen this soap-opera plot before; the ending is often the same, and it's often best to switch the channel early.
Advisory services offered through Sowell Management, a Registered Investment Advisor. The views expressed represent the opinion of Sowell Management. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and non-proprietary sources that have not been independently verified for accuracy or completeness. While Sowell Management believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sowell Management’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.