United States stock market indices saw flat to negative performance over a week that was again marked by unprecedented political posturing from US President Donald Trump.
The S&P 500 rose just 0.02% over the four trading days to the end of Thursday, US time, while the Nasdaq Composite was down 0.19% and the Dow Jones Industrial Average dropped 0.16% over the same period.
However, so far in 2026, each index is up between 1.2% and 2.2% despite significant geopolitical uncertainty after the Trump Administration snatched Venezuelan President Nicolas Maduro, threatened to intervene in Iran on the side of anti-government protesters, and continued to raise the prospect of annexing Greenland even though such a move risks splintering Nato.
Yet what many might consider to be the most impactful development – the news that the US Department of Justice is threatening to open a criminal investigation into the conduct of Federal Reserve chair Jerome Powell – also did not overly trouble the markets.
Powell has accused the White House of waging a campaign to influence central bank decision-making on interest rate policy, but has said he and the bank will not be swayed away from doing what’s best for the economy.
In New Zealand, the S&P/NZX 50 index was down just a smidge over the working week, despite a relatively large drop on Wednesday morning. It bounced back to reach an all-time high later that day, at 13,757.71, before settling back down in the latter half of the week.
ASB chief investment officer Frank Jasper said it was interesting that the markets had not reacted more drastically to the news cycle, and particularly to Trump’s threats against Powell.
Frank Jasper.
He said he concurred with American economist Tyler Cowen who wrote this week in the Financial Times that the lack of equities market reaction to Trump’s “terrible” actions, while the gold and silver markets “went crazy”, showed that the US dollar was no longer a safe haven.
He said the independence of the Fed had already been “wrecked” because national debt and deficits were now so high that governments would likely resort to “monetising” them – basically printing money to pay them off – rather than implementing higher taxes.
The process effectively undermines central banks’ power to regulate inflation through traditional means.
“We've created such a big drama and such a big kind of macroeconomic imbalance and problem that the normal passage of monetary policy, the things that we've obsessed about over however long our careers have lasted, tend to be a bit less relevant because the numbers are just so big,” said Jasper.
Some might argue that the long end of the government bond yield curve should be trending up if the markets were spooked about the prospect of rising inflation, but Jasper referred to an analysis from Robin Brooks of Brookings, which implied a massive spike in forecast 10-year inflation, 20 years from now.
“That is quite consistent with that idea that, ultimately, these fiscal imbalances have got so large that we will have to just live with higher inflation at some stage, and that we’ll essentially just inflate those debts away.”
Prices stable
Back to more immediate indicators of inflation, the US saw fresh annual consumer price index data for December released during the week, which was flat at 2.7%.
Contrary to the predictions of many in the market, including himself, Jasper noted that goods inflation in the US had been relatively benign despite the tariffs implemented by Trump last year.
“The deflationary work being done, and keeping that headline CPI number under control, is very much being done in the goods space, which does suggest that the tariff impact is not that material.
“You know, a lot of people keep waiting for it to hit, but I guess the longer we wait, the less likely it seems that it will happen. Management have obviously found ways to manage their way around tariffs in various ways, shapes, and forms.
“The services side of things still looks a lot stickier and trickier, and that's obviously a bit that I think we'll keep focusing on … because that tends to feed through to wages and that's where the concern is.”
US earnings
US earnings reporting season got under way this week, with financial services taking centre stage. Goldman Sachs and Morgan Stanley both reported rises in quarterly profit and saw commensurate gains in share price. Yet earlier in the week, Bank of America, Citi, JPMorgan Chase, and Wells Fargo all fell short of expectations.
Bank stocks experienced some pressure from Trump's surprise proposal to cap credit card interest rates at 10%, and also in the context of a new plan to stop Wall Street firms from buying up single-family homes.
But Jasper said productivity benefits stemming from artificial intelligence should be stimulating profitability at financial services businesses and, more directly linked to that AI appreciation trend, chipmaker Taiwan Semiconductor Manufacturing (TSM) reported a 35% jump in quarterly profit and saw an initial 6.8% spike in its share price.
TSM said its customers – and their customers – were "providing strong signals" and requesting capacity, meaning it was forecasting 2026 revenue would rise nearly 30% in US dollar terms.
“The AI theme continues to pump along pretty healthily at the front end,” said Jasper. “We’re now really looking at how that flows through to the users of the software, not just the manufacturers of the chips.”
