Markets have started the year trading much like they ended last year, with broader participation and strong relative performance in commodities and industrially linked areas alongside improved results outside the US. January saw significant bullish flow, but last week brought a sharp volatility shock across commodities, including large swings in oil and natural gas and an outsized one-day drop in silver. That move was framed as an extreme, position-driven event, with credit spreads described as still behaving, reinforcing the view that the episode was financial rather than economic.
Against that backdrop, the focus was on discipline and risk management. The team said they exited the vast majority of precious metals exposure, trimmed a handful of positions, and carried a small cash balance while continuing to like copper and base metals, noting increased energy exposure and added uranium exposure over the past month. They also pointed to operating margins at 15-year highs and Bank of America/Merrill Lynch survey takeaways showing very strong sentiment, low cash levels, and long gold as a crowded trade, while describing earnings season as noisy and choppy with recent reports including TSLA, LRCX, CLS, MSFT, and META, and META noted as the only one to trade up after earnings.
2026 Is Still Trading Like 2025 Ended
- Markets are behaving in line with how they left last year, with commodities continuing to lead over technology, breadth broadening out, and the “real economy” and industrials staying front and centre on a generally constructive growth backdrop.
A Big Volatility Week in Commodities
- We saw some eye-watering moves last week: repeated 5% daily swings in oil tied to Iran worries, roughly 25% daily moves in natural gas on weather, about 10% moves in gold, and a one-day silver drop described as about 30%. It was a meaningful event, and the kind of volatility that can force positioning changes quickly.
Despite the Shakeout, the YTD Story Still Favours Commodities
- Even after last week’s volatility, the year-to-date performance cited remains strong: oil up about 13%, gold and silver up over 10% with silver up about 20%, and copper up about 6%, versus US stocks up about 1%. Global diversification is also showing up in the numbers, with Euro Stoxx 50 up about 3.5% and the TSX up about 1.75% mentioned earlier.
Spreads Stayed Orderly, Pointing to “Financial, Not Economic”
- Fixed income spreads were described as still behaving, which was taken as an important signal that this was more about financial mechanics, things like margin calls and speculative excess, rather than something fundamental breaking in the underlying economy.
Risk Management in Real Time: Metals Reduced, Exposures Trimmed, Cash Held
Given how extended precious metals and miners had become and how little chart support there was, the team said they exited the vast majority of precious metals exposure, moved off a handful of positions, and reduced some specific exposures. They also noted carrying a small cash balance while waiting to see where things settle and being prepared to revisit trades when the setup improves.
Earnings and Positioning: Noisy Tape, Strong Fundamentals Underneath
Earnings season was framed as choppy and headline-driven, with last week’s reports referenced as TSLA, LRCX, CLS, MSFT, and META, and META noted as the only one to trade up after earnings. At the same time, operating margins were cited as being at 15-year highs, and the Bank of America/Merrill Lynch survey was referenced as showing very bullish sentiment and low cash levels, which fits with a market that still has a lot of bid under the surface even as volatility picks up.