EQUITY & FIXED INCOME MARKETS
Equity markets favored small and mid-caps in January. The S&P 500 Index returned 1.5% while the S&P 400 Mid-Cap Index and the S&P 600 Small-Cap Index returned 4.1% and 5.6%, respectively. International equities were also strong with developed markets ex U.S. up 5.2% for the month. GFC’s fixed income benchmark was up 0.1% for the month.
GEOPOLITICS & PORTFOLIO IMPLICATIONS
Geopolitical tensions took center stage during the month, with the Trump administration engaging in several flashpoints to varying results. While these developments present headline risk, they are also shaping our conviction around the importance of diversification, non-U.S. exposure, and caution toward areas of the market that remain priced for perfection.
Iran: Tensions with Tehran have reached a critical level following a deadly crackdown on internal protests in Iran. The USS Abraham Lincoln Carrier was dispatched to the Middle East this month as Trump considers military operations targeting Iranian regime leaders. The administration has set strict conditions for a new nuclear deal, including a total ban on uranium enrichment and the reduction of regional proxies such as Hezbollah and the Houthis.
Venezuela: One of the most dramatic escalations occurred in early January, when the U.S. launched a special military operation aimed at toppling President Nicolás Maduro. This intervention was reportedly triggered by escalating strikes against transnational drug cartels and has led to a period of heightened regional instability.
Greenland: Greenland has unexpectedly become a major point of friction with European allies as Trump renewed public calls to acquire the island. Trump has threatened punitive tariffs against European nations that resist these discussions. European leaders have discussed a potential boycott of the 2026 FIFA World Cup (partially hosted in the U.S.) as a “last resort” response.
Russia and Ukraine: The administration has pushed for an immediate end to the war through a mix of direct mediation and pressure. In late January, U.S. envoys brokered talks between Russian and Ukrainian officials in the UAE. While no breakthrough was reached, a second round is scheduled for February. Reports suggest the U.S. is tying future security
guarantees for Ukraine to the ceding of territory in the Donbas to Russia.
Asian Trade Wars: Trade tensions intensified following India’s continued purchase of Russian oil, prompting the U.S. to impose 25% penal tariffs (on top of existing reciprocal duties), though Treasury Secretary Scott Bessent recently hinted these might be removed if India continues to reduce its reliance on Russian energy. Meanwhile, a summit with Xi Jinping earlier in the month reportedly lowered some immediate tensions with China. The administration issued a final rule regarding high-end AI semiconductors, which allows the sale of certain NVIDIA and AMD chips to China but only in exchange for a 25% fee paiddirectly to the U.S. government. The U.S. also increased tariffs on South Korean goods due to 25%.
The “Board of Peace”: At the World Economic Forum in Davos, President Trump then launched this new initiative to oversee the reconstruction of Gaza and manage international conflict resolution. The Board is invitation-only and requires a $1 billion commitment. Though it has received a lukewarm reception from European and Asian officials, Saudi Arabia, Qatar, and Turkey have all purchased a seat. Trump will serve as chairman of the board indefinitely and according to the charter, can possibly hold the position beyond his second term as President. On January 7th, Trump also signed a memorandum withdrawing the U.S. from 66 different international organizations, arguing they are misaligned with American strategic interests.
The investment implications are many-fold and if anything, it emboldens our conviction around opportunistically increasing our non-US exposure. Many countries are re-aligning away from trade dependence on the U.S, with Canada’s new strategic partnership with China, a United Kingdom and China trade deal, and a massive European Union-India trade deal (dubbed “the mother of all deals” by both leaders). From a portfolio standpoint, industrial names like Schlumberger, Fluor, and Parsons stand to benefit from reconstruction activities in Latin America and have performed well for us in January. The market continues to shrug off these geopolitical worries in the short-term and appears focused on signs of weakness around the Artificial Intelligence (AI) trade. Gold and silver have captured the zeitgeist, and the volatility around the precious metals sector has been the highest in decades. The sector sold off heavily when Trump announced the appointment of Kevin Warsh as the new Chairman of the Federal Reserve at the end of the month. We are still processing the implications of this news, but at first glance we do not plan to make any near-term changes to our current positioning.
Robin Kollannur, CFA
Chief Investment Officer
