Markets Find Support in AI Despite Political Risks

Wall Street is wrapping up a tense week on relatively calm footing, amid renewed optimism around artificial intelligence and signs of resilience in the main engine of the world’s largest economy—the U.S. consumer.

Shares of the largest companies are leading gains as the market finds support in data showing consumer confidence reaching its highest level in five months. Still, the S&P 500 is heading toward its first two-week decline since June. Nvidia shares rise by about 1.7% after China signals to technology companies that they can begin preparing orders for H200 AI chips. At the same time, Intel plunges nearly 18% following a cautious outlook for its future performance. Small-cap stocks lag the broader U.S. index after outperforming it for 14 consecutive sessions.

Equity movements remain choppy. According to market observers, the market is entering a consolidation phase, in which lagging stocks catch up while previous leaders give back part of their gains.

In the bond market, trading remains relatively calm. With inflationary pressure persisting but signs of stabilization in the labor market, the Federal Reserve is widely expected to leave interest rates unchanged at its meeting on Wednesday. Economists surveyed by Bloomberg expect the first rate cuts only in June and September. The dollar is heading for its weakest week since May.

Global markets remain shaken by political tensions after President Donald Trump threatened to impose tariffs on some European countries over Greenland, before later softening his tone. The European Union will delay retaliatory tariffs on U.S. goods for another six months.

Market participants note that political headlines from Washington should not dictate long-term investment decisions, and that periods of heightened volatility often create opportunities.

The S&P 500 is hovering around 6,920 points. The megacap index rises by about 1.4%, while the Russell 2000 falls nearly 1.6%. The yield on 10-year U.S. Treasuries remains around 4.25%. The dollar weakens by 0.6%, while the Japanese yen posts its strongest weekly gain since August amid sharp volatility in Japanese markets.

Commodity markets are also seeing strong moves. Oil prices are rising as traders price in the risk of potential U.S. military action against Iran, as well as the impact of a powerful winter storm in the country. Gold is heading for its strongest week since 2020, silver climbs above $100, and copper rises above $13,000 per metric ton.

Despite political clouds in recent weeks, the U.S. stock market remains relatively close to its all-time highs. If tensions ease, positive sentiment around the leading themes of the year—continued adoption of artificial intelligence, deregulation, and more market-friendly policies ahead of the midterm elections—may once again come to the forefront.

According to Bank of America data, nearly $17 billion was withdrawn from U.S. equity markets in the week through January 21. Even so, the S&P 500 managed to recover its year-to-date gains ahead of key earnings reports from major technology companies. Some members of the so-called “Magnificent Seven” have underperformed the index over the past 12 months, making the upcoming financial results an important potential catalyst.

Despite concerns from some analysts that the latest pullback may not be sufficient to cool trade tensions between the U.S. and Europe, retail investors continue to buy actively. During the week of the decline alone, they directed about $4 billion into U.S. equities, with another $2.3 billion entering the market on Wednesday.

Buy-the-dip behavior remains deeply ingrained among investors and, combined with broadening market leadership, continues to tilt the balance toward a more optimistic market scenario.

As the U.S. earnings season gains momentum, early results are beginning to provide a clearer picture of the economic and political factors that will shape the outlook for corporate America this year. Stocks are trading at elevated valuations after the S&P 500 posted three consecutive years of double-digit gains, leaving little room for error.

According to strategists at Barclays, resilient corporate earnings and stability in interest rate markets will be key for equities to withstand geopolitical noise. At the same time, the slower start to the earnings season suggests that market volatility is not driven solely by geopolitics. Analysts at RBC Capital Markets note that earnings growth forecasts for 2026 have edged slightly lower, while corporate commentary during earnings calls remains cautiously optimistic.

Corporate highlights:

Apple accuses the European Commission of using politically motivated delays in implementing new app rules as a pretext to investigate and potentially fine the iPhone maker.

Meta Platforms, a leader in the smart glasses segment, faces a patent infringement lawsuit from a competing manufacturer. The case also involves eyewear giant EssilorLuxottica and the Oakley brand.

SLB, the world’s largest oilfield services provider, raises its dividend and reports fourth-quarter earnings above expectations. The company is benefiting from increased activity in the Middle East and other key regions, as well as the rapid expansion of its data center business.

Alcoa reports results that beat forecasts, but analysts question the quality of that growth.

DoorDash and Uber fail to block the implementation of a New York law that will require companies to display a tipping option at checkout.

Capital One reports adjusted earnings per share below analysts’ expectations and agrees to acquire fintech company Brex for about $5.15 billion. Brex specializes in corporate expense management and accounting solutions.

Walgreens Boots Alliance resumes selling e-cigarettes in some U.S. stores, reversing its stance after more than six years of pulling the products due to concerns related to youth use.

Software company Databricks secures $1.8 billion in new financing from syndicated loans and private credit providers.

Affirm applies for a limited banking license, which would allow it to expand its range of financial products for U.S. customers in the “buy now, pay later” segment.

Short interest in Sandisk has risen in recent months while the stock price has surged, increasing the risk of a sharp short-squeeze move.

The online unit of Saks Global Enterprises receives court approval to hire a liquidator and sell its inventory separately from the rest of the luxury retailer.

Deutsche Lufthansa faces the risk of keeping nearly its entire business class closed on its new Boeing 787 aircraft for an extended period, as seat certification is delayed—a costly issue amid rising demand for premium travel.

Ericsson proposes its first-ever share buyback program after reporting fourth-quarter results above forecasts, supported by cost-cutting measures and improved margins.

Thyssenkrupp is considering selling around 30% of its Rothe Erde bearing business, with the deal potentially valuing the asset at approximately €1.5 billion.

The largest Italian investor in Pirelli says it will not renew the shareholder agreement with China’s Sinochem Group, citing difficulties in adapting governance to the requirements of U.S. legislation.

French authorities receive reports of a second infant death linked to contaminated baby formula, widening the crisis involving Nestlé, Danone, and Groupe Lactalis.

Market moves at a glance:

The S&P 500 rises by about 0.2%, the Nasdaq 100 adds 0.5%, while the Dow Jones falls 0.5%. The MSCI World index gains 0.3%. The “Magnificent Seven” index climbs 1.4%, while the Russell 2000 drops 1.6%.

In currency markets, the Bloomberg Dollar Index falls 0.6%. The euro rises to around $1.18, the British pound to $1.36, and the Japanese yen posts strong gains.

In cryptocurrencies, bitcoin trades around $90,000, while ether approaches $3,000.

The yield on 10-year U.S. Treasuries remains close to 4.25%, with similar stability across other key maturities in the U.S. and Europe.

In commodities, WTI crude oil gains nearly 3% to around $61 per barrel, while gold rises to approximately $4,975 per troy ounce.

-Source: Bloomberg Terminal