U.S. Equities Recover, Commodities Firm on Geopolitical Tensions, Focus Shifts to Inflation Data

Index Update:  U.S. stocks pared early losses to close higher on Monday, with the S&P 500 reaching a record and the Nasdaq gaining on strength in technology shares and Walmart. The Dow also recovered after a sharp intraday drop, despite initial pressure from news of a DOJ investigation into Fed Chair Jerome Powell and weakness in bank stocks. Overall sentiment remained supported by optimism around upcoming earnings and expectations of a relatively benign CPI report.

Market Movers:  On Monday, the top gainers were Envirotech Vehicles, Inc. (+442.00%), followed by Lulu's Fashion Lounge Holdings, Inc. (+79.47%). On the contrary, Atara Biotherapeutics, Inc. (-56.99%), and Lyra Therapeutics, Inc. (-45.31%) declined the most the same day.

Commodities Update:  Oil prices climbed more than 1% on Tuesday, with WTI rising above $60 per barrel and Brent reaching around $64.6 per barrel, both marking their highest levels in over a month. The gains were driven by heightened geopolitical tensions after U.S. President Donald Trump announced immediate 25% tariffs on countries trading with Iran and warned of possible military action, raising concerns over supply disruptions from a major oil producer. Additional supply pressures from Kazakhstan, due to weather issues, maintenance, and damage to Russian infrastructure, further supported prices, offsetting expectations of increased Venezuelan crude exports. Gold and silver prices held near record highs on Tuesday, supported by strong safe-haven demand amid concerns over the U.S. Federal Reserve’s independence, geopolitical tensions, and trade risks. Gold hovered around $4,590 per ounce as investors monitored legal pressure on Fed Chair Jerome Powell, fresh U.S. tariffs targeting Iran’s trading partners, and awaited key U.S. inflation data for policy signals. Silver remained above $85 per ounce, buoyed by similar factors, including political pressure on the Fed, escalating unrest in Iran, and renewed geopolitical and trade uncertainties under the Trump administration.

Macro Updates:  U.S. inflation is expected to have held steady at 2.7% in December 2025, with core inflation edging up to 2.7% from 2.6% in November. On a monthly basis, both headline and core CPI are forecast to rise 0.3%, largely due to higher goods prices. While the data may suggest easing disinflation momentum, uncertainty persists over data quality because November figures were disrupted by the government shutdown.

Bonds Commentary:  The U.S. 10-year Treasury yield hovered near 4.18% on Tuesday as investors awaited inflation data that could shape Federal Reserve policy. Markets continue to expect two rate cuts this year starting in June, supported by weaker December job growth, though higher-than-expected inflation could limit easing. Sentiment was also influenced by uncertainty over Fed independence and an upcoming Supreme Court ruling on President Trump’s tariff policies.

Dollar Commentary:  The dollar index held near 99 on Tuesday as investors awaited U.S. inflation data for guidance on Federal Reserve policy. Markets continue to price in two rate cuts starting in June, supported by softer December job growth, though higher inflation could curb easing expectations. The dollar was also influenced by uncertainty over Fed independence and an upcoming Supreme Court ruling on President Trump’s tariff policies.

Futures Update:  U.S. stock index futures traded marginally lower on Tuesday as investors adopted a cautious stance ahead of crucial inflation data and a wave of earnings announcements from major banking institutions. Dow Jones Futures were down 60 points, or 0.1%, S&P 500 Futures eased 10 points, or 0.1%, while Nasdaq 100 Futures declined 65 points, or 0.3%.

Stocks initially declined at the start of trading on Monday but recovered significantly throughout the session. The major averages rebounded strongly from their lows and moved into positive territory, with the Dow and the S&P 500 reaching new record highs. The S&P 500 rose by 10.97 points, or 0.16%, closing at 6,977.26. From a technical perspective, the index remains above its key support zone and continues to show upward momentum. However, it is approaching a critical resistance area—an external liquidity range—which could lead to a mild correction. The 14-day Relative Strength Index (RSI) stays above the midpoint, indicating ongoing positive sentiment. The main support level is around 6,888, a significant threshold that could trigger a rebound, while resistance is anticipated near 7000.