Market Comment - January

During the past four weeks, equity markets were able to capitalize on seasonality, which is usually bullish for the month of January. The performance of the Stoxx 600 (+3.07%) was driven by ASML Holding, which gained more than 30.00% and lifted the Dutch AEX 5.29%. The Swiss Market SMI underperformed (-0.60%) together with the German DAX (+0.20%). Another positive outlier was the UK FTSE 100 (+2.94%), which saw strong gains in the industrial and materials sectors. As mentioned in the previous report, the Stoxx 600 is trading at very extended levels. Adding exposure in the current stratosphere could become hard to stomach in the coming weeks. Looking at US markets, we have seen a notable underperformance of large caps (S&P 100 +0.20%) against small caps (Russell 2000 +5.31%). Sectors and industry groups saw strong deviations from indices, with the energy ETF XLE gaining 14.18%, while the financial sector ETF XLF lost 2.41%. Within industry groups, the Dow Jones US Software Index cratered 13.23%, weighted down by Microsoft and SAP. We believe that this index has more room to fall. Until the last trading day of the month, miners were the spectacular outperformers, with the Copper mining ETF COPX gaining 37.50% and the Gold Mining ETF GDX rising 30.50%. Unfortunately, the month ended with a veritable crash in the metals market. It could be that the last leg up in gold, and especially in silver, was purely driven by speculative investors, who relentlessly bought call options. The commitment of traders report (COT report) is showing “non-commercial” speculative positioning in silver has fallen to an 18-month low, before the spectacular 26.91% plunge occurred on the last trading day of the month. There is a high probability that this debacle emerged from the derivatives market. The spike in volatility in the commodity market is something we do not appreciate. It attracts speculators and scares investors away. Crude oil seems to work to the upside only once there is a geopolitical risk emerging. The recent merger of Devon Energy and Coterra Energy though is an indication that the shale business is contracting. We firmly believe that the entire trading range in commodity indices, especially in the CRB since 2022, is a re-accumulation. In other words, commodity markets are digesting the strong rise we have seen from 2020 until 2022 and instead of building a top, the market creates a launchpad for the next leg up. On a relative basis we see two notable events. Growth has started to underperform value late November 2025 and continues to do so. During the same time frame, consumer staples are outperforming technology and the discretionary sector. This is a clear indication that investors are positioning themselves more defensively. But, while consumer staples are gaining ground against all key sectors, on top of the food chain remain natural resources. The relationship between the natural resources ETF IGE and the staples ETF XLP is showing a stunningly bullish setup for the commodity ETF. Suspicion arises that commodities are too cheap relative to other financial assets. Of course, silver at 130 could be too expensive, as one ounce is able to pay for two barrels of oil. Is silver too expensive, or oil too cheap? Finally, we have a new Fed chair. His name is Kevin Warsh. Like Jerome Powell, he is a lawyer and investment banker. The nomination gave the US dollar a reason to rebound, after it had dropped more than 2.50% since the beginning of the year. His communication sounded surprisingly hawkish, not at all the kind of talk the US President prefers. But in the long run, he will become the victim of the problems that have been unfolding over several years. De-dollarization and the relentless growth of government debt. Sooner or later, this will result in another quantitative easing program, something Mr. Warsh opposes, until he admits that the U.S. financial system will need it.