Weekly wrap

Week:

S&P500: -0.1% FTSE100: +1.1%  Gold: +0.5% Bitcoin: +4.2%

YTD:

S&P500: +1.2%  FTSE100: +2.9%  Gold: +6.0% Bitcoin: +9.0%

Policy Risk Returns as Tech Wavers and Small Caps Lead

Source: Connect Weekly | Week ending 17 January 2026

US equities ended the week lower as policy risk re-entered the frame and leadership rotated away from megacap tech. Early strength faded as concerns around Fed independence, AI exposure to geopolitics, and regulatory intervention weighed on sentiment. The Russell 2000 extended its outperformance streak, while precious metals and energy reflected rising geopolitical tension.

What drove markets this week

Markets opened higher on Monday, shaking off concerns around subpoenas served to the Federal Reserve and pushing the S&P 500 to another record close. Investors largely dismissed the threat to monetary independence, but gold and silver surged to fresh highs as Chair Powell acknowledged attempts to influence policy through judicial channels. Banks sold off sharply after President Trump floated a 10% cap on credit card rates, while tech and China-exposed internet names outperformed.

Tuesday’s tone deteriorated. Despite softer-than-expected core CPI, financials and hyperscalers dragged indices lower. Earnings beats from major banks failed to offset policy uncertainty, while comments from President Trump about preventing AI data centres from raising electricity costs weighed on cloud providers. Nvidia pared gains as reports emerged that China may still restrict access to H200 chips.

Midweek rotation and geopolitical pressure

Wednesday saw a deeper pullback in tech, with every Magnificent 7 stock closing lower. Energy outperformed earlier in the session as Iran tensions pushed crude higher, while defensives caught a bid. Bitcoin extended its rally following CPI relief, but earnings reactions were mixed as banks reported diverging results. China-related headlines weighed on semiconductors, with reports of effective bans on advanced chip imports adding pressure.

Small caps take the baton

Thursday delivered a change in leadership. Chipmakers rallied on TSMC’s blowout results, lifting the S&P 500 and Nasdaq 100, while the Russell 2000 notched its 10th straight session of outperformance, the longest streak since 1990. Financials rebounded on solid earnings, and energy lagged as rhetoric around Iran softened. Select AI infrastructure, utilities, defence, and healthcare names moved higher as investors rotated away from crowded megacap trades.

Friday: Markets close lower, small caps extend streak

After a volatile session, the S&P 500 and Nasdaq 100 finished slightly down, sealing a negative week. The Russell 2000 outperformed for an 11th consecutive session, its longest such run since 2008. Semiconductors held up well, but silver reversed sharply after strategists flagged downside risk following its rapid ascent. Treasury yields rose as comments from President Trump reduced expectations that a dovish successor would lead the Fed.

Weekend shock: Tariffs and Greenland

Markets head into the new week digesting a major geopolitical escalation. President Trump vowed to impose a rising tariff regime on European allies unless the US is allowed to purchase Greenland, with levies set to begin at 10% in February and rise to 25% by June. European leaders pushed back strongly, warning of severe consequences for NATO cohesion. While immediate market reaction has been muted so far, the move injects fresh uncertainty into trade, defence, and commodity markets at a sensitive moment for global risk appetite.

Looking ahead

With policy risk firmly back on the agenda, investors will watch whether small-cap leadership can persist and how markets price the intersection of geopolitics, trade, and monetary independence. Energy, defence, and strategic materials remain in focus, while tech leadership looks increasingly selective. Volatility may stay elevated as markets reassess assumptions that dominated the early weeks of 2026.