Global Risk Monitor: Week in Review – Jan 16

January market action reflects a clear rotation away from narrow mega-cap leadership toward broader equity participation, a shift that is both cyclical and allocational in nature. Small-cap stocks have emerged as standout performers, with the Russell 2000 and S&P MidCap indices significantly outperforming large-cap benchmarks. Most notably, the S&P 500 Equal Weight Index has outpaced the cap-weighted S&P 500 by nearly a factor of three, underscoring a broadening of market leadership rather than a deterioration in risk appetite

In contrast, technology—particularly AI-adjacent software and select mega-cap names—has lagged, as investors reassess valuation risk, competitive disruption from generative AI platforms, and the sustainability of earnings dominance. This underperformance appears less like a regime shift and more like early-year portfolio rebalancing, as institutional allocators rotate exposure following an outsized 2025 tech rally.

Outside equities, silver prices surged an extraordinary 25% in January, reflecting renewed interest in real assets amid geopolitical uncertainty, easing inflation momentum, and strong industrial demand signals. Lumber prices also jumped sharply, hinting at nascent reflationary and construction-related demand.

Geographically, Asia stands out as the strongest regional performer, with Korea, Indonesia, Japan, and the Philippines delivering impressive equity gains, supported by currency dynamics, export resilience, and improving domestic growth expectations. Overall, January’s market behavior signals rotation, not retreat, a constructive but fragile setup heading into a policy and data-heavy February.

Global Market Strategy Analysis Cross-Asset Market Signals

• Equity leadership is broadening, with small caps and equal-weight indices leading performance rather than mega-cap concentration

• S&P 500 Equal Weight Index outperforming cap-weighted S&P by ~3x YTD highlights healthy internal market breadth 

• Technology and AI-linked equities lagging, particularly software, as valuation sensitivity rises

• Silver +25% in January, signaling renewed inflation hedging, industrial demand optimism, and geopolitical risk pricing

• Lumber prices surged last week, reinforcing early-cycle and reflationary signals

Equity Rotation & Style Dynamics

• Small caps “rocking” after prolonged underperformance in 2025

• Rotation appears allocational rather than fundamental, driven by:

  • Early-year portfolio resets

  • Valuation dispersion

  • Catch-up trade dynamics

  • Too early to declare a lasting regime change; positioning is likely still fluid

AI enthusiasm remains structurally intact

• Software names under pressure amid disruption fears

• Mega-cap tech is experiencing valuation digestion

• Semiconductors are more resilient than software, supported by infrastructure demand

Likely near-term consolidation before selective re-entry

Regional Equity Performance

Asia – Clear Outperformance

• Japan: Strong equity rally on fiscal stimulus expectations and yen weakness

• Korea: Semiconductor exports and improving global demand are driving gains

• Indonesia & Philippines: Benefiting from EM capital inflows and domestic growth resilience

• Asia ex-China continues to attract incremental global capital 

Europe

• Modest gains, supported by easing inflation but capped by weak growth momentum

United States

• Rotation-driven gains beneath flat headline indices

• Value, small-cap, and cyclical exposure outperforming growth

Macro & Policy Backdrop

• Markets are currently filtering out policy noise, focusing instead on:

  • Cooling but resilient U.S. inflation

  • Stable labor market

  • Earnings durability

  • Upcoming risks:

    • President Trump’s Davos speech

    • Fed leadership uncertainty

    • Shifts in rate-cut expectations could test market complacency

Strategic Takeaways

• This is rotation, not risk-off

• Broadening participation is constructive, but momentum is vulnerable to policy shocks

• Commodities—especially silver—are quietly signaling macro regime hedging

• Asia remains the cleanest relative growth and equity story in the near term

• Maintain flexibility: early-year moves often exaggerate signals before fundamentals fully assert themselves

Week Ahead: Key Risks, Catalysts, and Market Tests

• Policy & Central Bank Focus

  • Markets will be tested on their ability to continue filter out the noise  as several high-profile policy events approach.

  • President Trump’s Davos speech represents a key event risk, particularly around:

    • Trade rhetoric

    • Tariff policy

    • Fed independence narratives

  • Any escalation in policy uncertainty could challenge the recent risk-on rotation, especially in small caps

• Federal Reserve & Rates

  • Recent developments have reduced the probability of near-term dovish outcomes.

  • Chair Powell’s resistance to DOJ-related pressure increases the likelihood he remains a Fed governor beyond May, reinforcing continuity.

  • Markets will closely watch Fed communications for signals on:

    • Rate-cut timing

    • Tolerance for renewed financial easing

  • A renewed rise in long-end yields could disproportionately pressure small caps after their sharp January rally.

• Economic Data Watch

  • U.S. releases on GDP, jobless claims, housing activity, and consumer sentiment will shape near-term rate expectations.

  • Data strength is likely to be interpreted asymmetrically:

    • “Good data” may revive rate volatility

    • “Soft data” would reinforce the broadening equity trade

• Earnings Season Acceleration

  • Upcoming earnings from tech, industrials, and consumer names will be critical in determining whether:

    • AI underperformance is a pause or a deeper reset

    • Small-cap optimism is supported by forward guidance

  • Any downside surprises in tech could further favor equal-weight and value exposures.

• Global & Geopolitical Considerations

  • Ongoing Middle East tensions (Iran-related trade risks) remain a latent tail risk.

  • Asia-focused investors will monitor:

    • Japan’s political developments

    • Export data from Korea and China

    • EM Asia capital flow sustainability

Bottom line:
The coming week is a stress test for January’s rotation narrative. If markets can absorb policy headlines and macro data without a sharp rise in yields or volatility, the broadening trade likely persists. If not, a short-term consolidation—particularly in small caps—becomes increasingly likely.