Welcome to the January 2026 letter. In our view, investors should brace for a relatively volatile first six months. Below we discuss four potential headwinds for the markets in the first half.
U.S. Supreme Court decision on the legality of tariffs.
The U.S. Supreme Court is currently weighing a challenge to U.S. President Donald Trump’s authority to impose sweeping tariffs via an executive order versus getting approval from Congress. The case focuses on whether the president can use emergency powers to bypass Congress’s traditional authority over taxes and trade. While oral arguments were heard on 5 Nov-25, a final decision has not yet been released. While investors expected a decision from the Supreme Court before Feb-26, it appears it could get delayed further. Given the possibility of the Supreme Court ruling against President Trump – in which case the collected tariffs will need to be paid back – the outcome is likely to have a material impact on markets. As of January 2026, projected tariffs which could be required to pay back are approx. $150-165bn.
Geopolitical tensions – Greenland & Iran.
Given we now live in a very multipolar world, flare ups in geopolitical tensions between regions are just part of doing business in our view. Nonetheless, the Greenland issue was somewhat of a surprise. President Trump has noted that Greenland is of strategic importance to the U.S. and that he was willing to take full control of it the “easy way or the hard way”. Given Greenland is part of Denmark, it wasn’t then a surprise that allies across Europe came out strongly condemning any such move by the U.S. In true President Trump style, he responded with the threat of more tariffs. On January 21, during a speech at the World Economic Forum in Davos, President Trump appeared to back down. Following a meeting with NATO Secretary General Mark Rutte, he announced a “framework of a future deal” and withdrew the immediate threat of tariff. The Iran issue also continues to bubble away in the background and, in our view, the potential threat of an attack on Iran by the U.S. is not out of the question. Geopolitical analysts believe Israel will continue to encourage the administration on military action given Israel sees this a once-in-a-lifetime opportunity to topple the Iranian regime. A potential attack on Iran will have material consequences for inflation and global oil/LNG markets.
New Fed Chair – President Trump has nominated Kevin Warsh to be the next chair.
After months of speculation, the U.S. President has nominated Kevin Warsh to head up the most important central bank in the world, U.S. Federal Reserve. If approved by the Senate, Mr Warsh will take over from Jerome Powell when his term ends in May. Mr Warsh will have to play a delicate role in an environment where investors are questioning the U.S. Fed’s independence from elected officials. On the other hand, President Trump has likely made it very clear to him what he wants from the new Fed chair – lower interest rates. However, if Mr Warsh starts to push for lower interest rates (keep in mind he is still only 1 vote on the Board and therefore needs a majority) , he will be lowering rates into what already appears to be an economy running hot:
- The S&P 500 Index all-time high
- Chicago Fed’s National Financial Conditions Index now the loosest over the past 12 months, with the increase almost completely due to an increase in risk.
- The Fed Atlanta GDPNow fourth quarter 2025 estimates at 5.4 percent for the U.S.
Lagged impacts from tariffs.
As of early 2026, investors should be aware that the “actual” tariff rates being paid are roughly half of the “announced” rates due to these ongoing legal challenges and trade exemptions. Put another way, the effective tariffs rates are still below the baseline tariff rates, which means the full impact of tariffs is yet to be felt by the global economy. Of course, companies are repositioning supply chains to ensure they ease any tariff burden. In any case, we see the potential risk of lagged impact from tariffs to begin showing up in global economic growth when first quarter 2026 GDP numbers are reported. We may get early tell signs from global companies when they publish trading updates throughout the first half of 2026. In any case, this is a risk that is not fully appreciated by the market in our view.
Gold remains well supported.
At the time of writing, the gold price had breached the US$5,000 level. The precious metal has been on an extraordinary rally over the past three years, as investors sought out defensive assets away from the U.S. Treasuries and U.S. dollars. A key driver behind the gold price has been the sustained buying from global central banks, who have also looked to diversify away from U.S. assets. We do not believe this demand is going to moderate.
We can see the narrative of diversifying away from U.S. assets playing out in the decline of the U.S. dollar. The chart below indicates institutions are reducing their U.S. dollar exposure.
