S&P 500 Falls And Recovers As Geopolitical Pendulum Swings
The S&P 500 (Index: SPX) experienced some geopolitical turmoil during the holiday-shortened trading week ending on Friday, 23 January 2026. The index plunged two percent on Tuesday, 20 January 2026 thanks to a one-two punch.
One of the punches was delivered by President Trump's weekend announcement he would impose new tariffs on European nations opposing his initiative to acquire Greenland from Denmark. That action had sent European stock prices lower before contributing to the U.S. stock market's drop. The good news here however is that by Thursday, the dispute was resolved and stock prices recovered.
The second punch was delivered by a developing crisis for Japan's economy. On Tuesday, 20 January 2026, the nation's new prime minister, Sanae Takaichi, announced plans for a snap election to secure a mandate for much higher government spending. That's a problem because Japan's central bank has been struggling to control inflation, which the new spending is expected to aggravate. The response by markets has been to send Japanese government bonds and its currency plunging, which has a global impact. This developing crisis has not yet been resolved.
In reaction to all this, and other market-moving news, the U.S. stock market rebounded, but not all the way. The S&P 500 closed out the week at 6,915.61, down 0.35% from its previous week's close.
It's not often we can point to geopolitical events as contributing anything more than noise to the trajectory of stock prices. The latest update of the alternative futures chart shows the S&P 500's trajectory is where it would be expected to be for investors focusing on the upcoming future quarter of 2026-Q2.
As for why, one major reason is provided by the CME Group's FedWatch Tool, which continues to project the Fed will hold the Federal Funds Rate steady until 17 June (2026-Q2), when it anticipates a 77% probability for a quarter point rate cut. The tool forecasts a better than 50% chance of another quarter point reduction on 28 October (2026-Q4).
As for what else influenced investor expectations for the future during the week that was, here are the week's market moving headlines:
Tuesday, 20 January 2026
- Signs and portents for the U.S. economy:
- Fed minions job security to be determined by U.S. Supreme Court:
- Bigger trouble, stimulus developing in China:
- BOJ minions signal more hikes to Japan's interest rates ahead:
- ECB minions to get new Number Two minion, say new tariffs no big deal for Eurozone:
- Nasdaq dropped over 2% as Wall Street closed deep in the red on geopolitical jitters
Wednesday, 21 January 2026
- Signs and portents for the U.S. economy:
- Trump drops European tariff threat and announces framework Greenland deal - as it happened
- Trump signs order to limit Wall Street investors in single-family housing
- WTI oil prices fall as risks from Kazakh production halt subside
- US construction spending rebounds in October amid renovations
- US pending home sales plunge to five-month low in December
- Fed minions expected to hold rates steady until it gets new management:
- Bigger trouble developing in Japan, calls for BOJ and JapanGov minions to stabilize currency:
- ECB minions getting excited about digital currency:
- Wall Street rallied higher after Trump spoke at Davos and eased tariff concerns
Thursday, 22 January 2026
- Signs and portents for the U.S. economy:
- New trade map takes shape in Davos as world adjusts to Trump tariffs
- Silver rally strains global supply as retail demand surges across Asia
- US consumer spending rises, labor market remains in lackluster shape
- Trump's mortgage-backed bond purchases not moving needle on housing costs
- US third-quarter economic growth revised slightly higher
- Fed minions' future job security lies in Supreme Court decision, still not seeing getting inflation they predicted from tariffs:
- Bigger trouble developing in China:
- Bigger exports developing in Japan, worry about U.S. trade policy; BOJ minions going through their options to deal with bond rout:
- ECB minions think they've got everything covered with their monetary policy for the Eurozone:
- Wall Street finishes up as investors buoyed by tariff relief, upbeat data
Friday, 23 January 2026
- Signs and portents for the U.S. economy:
- Bigger trouble developing with China:
- BOJ minions say they're really worried about inflation but hold Japan's interest rates steady, try to keep currency from collapsing, Japan's economy sees growth signs:
- Eurozone minions back down, ECB minions perfect monetary policies to be potentially challenged by new inflation:
- Dow ends lower after topsy-turvy week, as Intel's outlook weighs on market sentiment
The Atlanta Fed's GDPNow toolestimate of real GDP growth in the U.S. during 2025-Q4 gained a tick, rising to +5.4% from the +5.3% growth it projected a week earlier.
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