Geopolitics, Bond Yields, and a Market Reality Check | S3 E113 | 01-21-26

Markets don’t need a heavy data week to make big moves. We open with a sharp risk-off swing sparked by a jump in Japan’s 10-year yield to heights not seen since 1999, then trace how that shock rippled through Treasuries, equity multiples, and the dollar. From there, we unpack why long-duration growth names led the slide, why small caps fell less, and how a thin economic calendar let geopolitics take the wheel.

Tariff talk and tense U.S.–Europe rhetoric around Greenland put sentiment on edge, but the narrative shifted when force was taken off the table, fueling a fast relief rally. We break down the split in hedges—gold pushing to new highs while Bitcoin sank—and explain what that contrast says about liquidity preferences and real yield expectations when macro risk rises. Along the way, we revisit the mechanics of duration in both bonds and equities, and how higher discount rates directly pressure high multiple stocks even without an earnings miss.

Looking ahead, we map the catalysts that matter: a pending Supreme Court decision on tariffs that could redefine trade tools, midterm election dynamics that typically lift volatility, and a coming recommendation for the next Federal Reserve Chair that will signal policy continuity or change. With valuations still pricing a near-perfect backdrop, we argue for stress testing portfolios against higher global yields, a choppier dollar, and headline risk that hits specific sectors first. Expect more twists, prepare for whiplash, and focus on balance sheets with pricing power and durable free cash flow.

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https://youtu.be/5Hr25FObNK4

Disclaimer:  material was prepared by Verdence Capital Advisors, LLC (“VCA”). VCA believes the information and data in this document were obtained from sources considered reliable and correct and cannot guarantee either their accuracy or completeness. VCA has not independently verified third-party sourced information and data. Any projections, outlooks 
or assumptions should not be construed to be indicative of the actual events which will occur. These projections, market outlooks or estimates are subject to change without notice. This material is being provided for informational purposes only and is not intended to provide, and should not be relied upon for, investment, accounting, legal, or tax advice. Past performance is not a guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance 
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Transcript

A Wild Week On Wall Street

Megan Horneman 0:00

It's been a roller coaster ride for investors this week. It is Wednesday, January the 21st, and this is Markets with Megan. If you like this podcast, subscribe. You can hit the alarm bell, share with your friends, family, or colleagues. But we're here today to talk about some of the market movements we've been seeing over the past two days. And this is in light of having very, very slow economic data calendar. We got some disappointing news from the pending home sales today, but the majority of news that's been moving the markets has all been about geopolitical reasons. Not only the rhetoric between the US and Europe concerning Greenland and the US wanting to take ownership of Greenland, but also we've got a big sell-off in Japanese bond yields. This is something where we haven't seen the 10-year Japanese bond yields rise to this type of a level since 1999. So you're looking at well over 2%. This caused a lot of fear across the global bond markets. We saw a big sell-off in yesterday's US bond market as well. Now, when you see higher yields and an increase in geopolitical tensions, what do you tend to see? You see the stock markets decline. And what we saw was those areas of the market that have seen the biggest rally last year, that have the highest price to earnings multiples, that can be impacted by highest higher interest rates, they saw the biggest declines. But it was really all led by the US. And that was specifically the NASDAQ, the SP 500, large cap growth. We actually saw small cap stocks outperform large cap stocks yesterday, still decline, but we did see an increase. I mean, them fall less. The other areas of the market that saw weakness was the dollar. When you get concerns about what the US is going to do, if we're going to get into another trade war or tariff war, um, because of what the US's interests are in Greenland, that tends to spook all investors in U.S. assets. We did not see what some people think is a hedge against um volatility around the world, Bitcoin. We did not see that rally. We actually saw that decline pretty sharply. But we did see gold again make some new record highs here. Now, today this has reversed course. Um, the market has turned around. President Trump came out today, said that he reassured he doesn't want to use force to take Greenland. We don't think that this is going to be some sort of a forceful situation when it comes to Greenland. Instead, at the end result, we think what will happen is just the U.S. having a greater military presence there. Um, we think as usual, Trump does come out with the big far-ending part of the deal to somewhere meet in the middle. We agree, though, that any additional rhetoric around trade war between the US and Europe, we the the uh Trump talked about tariffs, additional tariffs on wine in Europe. This is not good for the markets. It's not good for sentiment. Um, it's one of the many reasons that we've been concerned about the market coming into this year. Valuations were were pricing in perfection. And we're not talking about just from fundamentals with interest rates, with um the economy, but that that Trump would be completely quiet and we wouldn't see anything on the front when it comes to some of the other initiatives that he has in his that he came forward and campaigned on. So we think um today's a nice welcome relief rally, but again, this volatility is probably not behind us. It's gonna be a very interesting year. Don't forget it's a midterm election year, and in the near term, we still are waiting for the Supreme Court decision on the tariffs. And then Trump has said he would um shortly announce his recommendation for the Federal Reserve Chairman position that that come that will come up in May. That's all we have today. If you want a history of our podcast, you go to MarcusMegan.fm. Thank you.