We share our latest observations on global asset markets

All movements are expressed in United States (US) dollar terms, unless otherwise stated.

Key points

• Unperturbed by the month’s major geopolitical issues (Venezuela, Greenland and Iran), global equities had a strong start to the year. US indices lagged those in Europe and Asia as US technology stocks continued to contend with market scepticism about the outlook for artificial intelligence.
• T8 Energy Vision generated a positive return for the month, outperforming global equities with comparable realised volatility (a common measure of risk). Please refer to the monthly report for detail specific to the performance of the fund.
• We attribute the strong performance to the growing realisation that energy is the key obstacle to the growth of artificial intelligence. We maintain our particularly positive outlook for the electricity sector which is driven by structural, secular and cyclical tailwinds all converging.
• We believe that investors will not be able to get sufficient exposure to this thematic via major indices and therefore a deliberate allocation to a strategy such as T8 Energy Vision should be contemplated.

Market update

Unperturbed by the month’s major geopolitical issues (Venezuela, Greenland and Iran), global equities had a strong start to the year. US indices lagged those in Europe and Asia as US technology stocks continued to contend with market scepticism about the outlook for artificial intelligence.

While the cluster of geopolitical headlines appears to have contributed to much stronger demand for safe havens such as gold, it didn’t appear to negatively impact appetite for risk assets, such as equities, or translate to more demand for bonds, which is surprising.

Looking ahead at markets overall, we remain of the view that investors should be mindful of a number of risks, including:

• elevated risks associated with the various geopolitical conflicts;
• elevated US debt levels;
• the unsustainably high US budget deficit;
• the likelihood that US government policy exacerbates these issues (at least in the short term);
• the US Federal Reserve losing its independence;
• the recent US Government shutdown which may have distorted vital economic data; and
• uncertainty in relation to the impacts that tariffs will have on the US and global economies (especially on inflation, employment and economic activity).

We believe that these factors, combined with US equities indices trading near to all-time highs should be motivating equity investors to seek exposure to geographies, sectors and themes which have attractive valuations and lower risk profiles.

We particularly favour defensive sectors such as electric utilities to which T8 Energy Vision has significant exposure. We observe that the utilities sector is benefitting from growing electricity demand in developed markets for the first time in a decade (driven by the data centre boom), which is a genuinely attractive attribute in addition to its well-known defensive characteristics.

Macroeconomic data

Interest rate expectations

Comments following January’s Federal Open Market Committee (FOMC) meeting signalled a continuation of the ‘wait and see’ approach to interest rate policy. The dot plot projected just one cut in 2026 with comments citing solid economic growth, stabilising jobs market, and inflation remaining sticky above 2% as reasons to wait for more data. Two governors (Governors Waller and Miran) dissented in favour of another cut. Notwithstanding the caution expressed by the FOMC, the market is pricing in two interest rate cuts for 2026, with the first at the July meeting.

Subsequent to the FOMC meeting, President Trump’s nomination of Kevin Warsh as the next Federal Reserve Chair ended months of speculation. While Kevin Warsh was initially viewed as more hawkish than other candidates such as Kevin Hassett (dovish, pro-growth), he is widely expected to be more dovish than the incumbent Chair, Jerome Powell. We believe this weighs the outlook towards more US interest rates cuts in the near term (rather than fewer), which supports the market’s outlook for more easing than the FOMC’s dot plot is presently guiding.

Inflation data

In the absence of the Core Personal Consumption expenditures Price Index (Core PCE) which wasn’t published due to the recent government shutdown, the Consumer Price Index (CPI) is the most reliable indicator of inflation. Core CPI came in at 2.6% year-over-year which was cooler than market expectations of 2.7% but unchanged on the prior reading. Inflation remaining persistently elevated is sub-optimal given there is still a risk of inflationary impacts from US-induced trade war and elevated inflation is a key impediment to interest rate cuts.

Employment data

We believe the recent government shutdown, sudden replacement of the Bureau of Labor Statistics Commissioner Erika McEntarfer and dramatic decline in US immigration makes US labour market data more difficult than usual to interpret. The January non-farm payrolls reported 50 thousand new jobs created which was below expectations for 70 thousand. Notwithstanding the continuing trend of lower-than-average job creation, the US unemployment rate remains low at 4.4% as a result of what economists are describing a ‘no-hire, no-fire’ environment whereby job openings, hiring and lay-offs have all slowed markedly and this remains an issue to monitor.

Consumer confidence

Consumer confidence (you will recall that consumer spending accounts for nearly 70% of US economic activity) continues to oscillate in weak territory with a level of 84.5 in January down from 89.1 in the prior month (with the context that readings of less than 100 indicate a more pessimistic than normal outlook).

Market impacts

Bonds

US Treasury yields ended the month little changed and so too global bond benchmarks (Global Aggregate Bond Index +0.9%), notwithstanding the obvious elevated geopolitical tension, which would have been expected to increase market appetite for bonds more materially. The slope of yield curve remains neutral with the 10-year/2-year spread at 71 basis points.

We remain mindful of risk at the long end of the curve on the basis that a yield of 4.5-5% on 20-year US Treasuries may not be sufficient compensation for the risk of lending to a government with a debt level of 150% of gross domestic product and an outlook for material budget deficits for the foreseeable future.

Currencies

The US dollar weakened (US Dollar Index -1.4% to 97) in the face of elevated geopolitical risks, notwithstanding it has typically been sought as a safe haven in such times. It tested the lower end of the trading range (US Dollar Index 97-100) observed during the second half of 2025 and looking ahead we anticipate headwinds for the US dollar driven by the ongoing US interest rate easing cycle and the momentum of emerging markets in 2026. We believe that questions in relation to the US currency’s role as a global safe haven (driven by investor concerns about US economic policies such as tariffs, budget deficits as well as political interference with the US Federal Reserve and government agencies such as the Bureau of Labor Statistics) will add to the headwinds facing the US dollar by encouraging capital to diversify into other markets.

Commodities

Multiple catalysts combined to create very strong tailwinds for commodity prices in January. The metals and energy sectors were suddenly recognised as cheap and unloved with geopolitical safe‑haven benefits, together with elevated demand from the AI boom and energy‑transition. All of this was amplified by speculative flows, a weakening US dollar and expectations for further interest rate cuts in 2026 which lowers the opportunity cost of holding commodities.

Precious metals

Gold (+13.3%) and silver (+18.9%) surged to all-time highs on safe‑haven demand and a speculative squeeze following a series of major geopolitical issues (the Maduro raid on Venezuela, the spike in tensions around Greenland, and civil unrest in Iran, alongside the ongoing conflict in Ukraine).

We have provided much more detailed observations in relation to gold and silver in a separate report.

Industrial metals

Copper (+4.9%) hit record levels early in the month, supported by demand narratives from the data‑centre boom, grid upgrades (neither of which are new) compounded by ongoing mine supply disruptions, which we believe is the most material factor behind the price action, and we note that this is a temporary factor.

Energy

Oil (brent crude +16.2%) and natural gas prices (US Henry Hub +18.1%) jumped sharply, on geopolitical risk premia and suddenly colder winter weather.

President Trump ordering the USS Abraham Lincoln carrier strike group to the Middle East kept a risk premium in crude oil prices.

Equities

Unperturbed by the month’s major geopolitical events (Venezuela, Greenland and Iran), global equities (MSCI World Index +2.2%) had a strong start to the year.

US indices (S&P 500 Index +1.4%, Nasdaq 100 Index +1.2%) lagged those in Europe (FTS 100 Index +2.9%) and Asia (KOSPI Index +24.0%, Hang Seng Index +6.9%, NIKKEI 225 Index +5.9%) as US technology stocks continued to contend with market scepticism about the outlook for artificial intelligence (S&P 500 Information Technology Index -1.7%).

Market breadth increased markedly which was highlighted by the equally-weighted S&P 500 Index (+3.3%) materially outperforming the S&P 500 (+1.4%) which is a positive for risk appetite and evidence of a healthier uptrend.

From a factor perspective, value stocks (+4.4%) outperformed growth stocks (-1.5%) and small caps (Russell 2000 Index +5.3%) outperformed large caps (Russell 1000 Index+1.3%), which also indicated increasing market breadth.

Future energy stocks

Future energy stocks rebounded (Clean Energy Index +10.8%). We note that the Clean Energy Index contains a significant number of small, loss-making energy technology companies with high short-interest, and therefore the performance of the Goldman Sachs ‘highest short interest basket’ (+11.3%) may indicate that short-covering was a key driver of the index’s strong performance. We note that T8 Energy Vision has only eight positions which overlap with the index’s 148 total holdings.

Outlook

Structural, secular and cyclical tailwinds are converging for energy stocks. Global energy demand growth is accelerating – especially in advanced economies. In 2024, electricity demand grew at roughly double the 10-year average. Electricity is booming, driven by data centres (a secular growth trend) and the electrification of road transport (a structural shift).

We believe that electricity is the key constraint to the growth of artificial intelligence. Electricity is much more scarce than the risk capital required to fund the development of AI models and build the data centres.

The winners in this boom will include energy generation, grid infrastructure, energy storage and electrification (as well as their supply chains, including critical raw materials).

The world (and especially developed markets) needs more electricity generation. Our expectation is that this need will be met by a variety of different generation types, namely nuclear, gas and large-scale renewables. The lead time and cost of new nuclear and even gas-fired electricity generation creates a fertile environment for large-scale renewables, notwithstanding the prevailing perception to the contrary (especially Donald Trump’s ‘drill, baby, drill’ comments and open hostility towards renewables). We refer you to a short summary of our expectations for the future energy mix in the US.

Falling US interest rates (175 basis points of cuts so far in this cycle) is an additional tailwind for electric utilities and their supply chains (these industries have historically displayed very high sensitivity to interest rates). We expect that falling US interest rates will remain a tailwind on the basis that the consensus ‘neutral’ interest rate is between 2.25% and 3.25% (relative to the lower bound of the target federal funds rate at 3.50%) indicating that further easing remains the base case.