It’s TACO Wednesday
By Crest Capital Advisors on January 26, 2026
Dow: (0.53%) to 49,098.71
S&P 500: (0.35%) to 6,915.61
Nasdaq: (0.06%) to 23,501.24
Russell 2000: (0.32%) to 2,669.16
Bitcoin: 89,360
10 Year Yield: 4.23%
Outperformers: Energy 3.11%, Communication Services 1.06%, Healthcare 1.06%
Underperformers: Financials (2.52%), Real Estate (2.36%), Utilities (1.95%)
US equities finished were mostly lower in the holiday shortened week, though not by a significant amount. The S&P 500 and Nasdaq were slightly in the red, posting a second-straight weekly decline. The small-cap Russell 2000 was also slightly lower, breaking two straight weekly gains. The small cap index outpaced the S&P 500 again, and remains the YTD leader thus far.
Geopolitics and Greenland were the biggest focus this week. After Trump’s increasing threats in recent weeks around Greenland, markets sold off hard on Tuesday after the President threatened a 10% tariff on eight European countries if they did not support a deal for the US to acquire the Danish territory, while the EU considered €93 billion in counter-tariffs. However, markets rebounded on the so-called TACO trade dynamics (more on this below) after Trump on Wednesday announced a “framework” for a Greenland deal had been reached with NATO, leading him to drop the tariff threat.
Markets are starting to learn that Trump tends to escalate rhetoric until financial markets wobble, then he backs off. Hence the TACO term…Trump Always Chickens outOver. The more this happens, the more we see investors getting trained not to panic at the first headline. The paradox, of course, is that if everyone expects a retreat once risk assets sell off, then risk assets never really sell off. No one wants to be the investor who de risks five minutes before a walk back sends equities ripping higher.
That dynamic is the essence of the TACO trade. Trump Always Chickens Out. The belief that policy threats are reversible has desensitized markets to noise, dampened downside follow through, and compressed the duration of volatility spikes. The mistake is treating these swings as signals of regime change. In reality, they are part of a feedback loop the market understands well. Short lived drawdowns driven by rhetoric rather than fundamentals have increasingly been opportunities, not warnings. Until the market believes the back off will not come, volatility is less a reason to retreat and more a chance to add exposure at better prices.
In the meantime, please enjoy our meme of the week that encapsulates what happened this week.
Tactical Update
When we entered the week, we note about 70% of S&P 500 stocks were trading at or above their respective 200-day moving average, credit spreads near the tights (no signs of risk here), the Russell 2000 and Equal-Weight S&P at fresh highs (broadening out of the market), Industrials still leading (sign of economic optimism), and most global markets in uptrends. Simply put, this is not the backdrop we’d expect to see ahead of a major top.
We’d be more concerned about the pockets of the market that enter this period already in a weakened position – e.g., Tech is narrower than most realize, with barely 50% of issues above the 200-day, and Software stocks are breaking down left and right. Away from Google/Alphabet, Communication Services is also wounded and recently went negative in our relative model.
For as nasty of a day Tuesday was on the surface, what it didn’t do was disrupt the rotational beat that has been pulsing through markets since October/November of last year. Breadth was weak, but not awful at -3.6 to 1 among Russell 3000 issues. The market was saved by defensive Staples and Energy stocks. The equal-weight S&P 500 outperformed by some 60 bps on the week, extending its lead early in this new year, as the Small Cap v. Technology relative pair turned positive for the first time in ages. To the extent this is happening at the expense of Tech, it’s most evident in the internals – only 52% of the sector is above its 200-day moving average, having effectively made no progress over recent months. The Semis vs. Software split is most extreme in this regard, with some 90% of the chips still in trend vs. < 30% of Software.
Profits & CapEx Holding it All Together
With US unemployment rising, we continue to hear unease about the state of the US labor market. These are fair concerns. But recessions are generally characterized by contagion that spreads across the economy. We continue to take a broad view.
We have good historical economic data going back to the 1940s. Two regularities about recessions:
1) We have never seen a U.S. recession with corporate profit growth staying positive y/y, and
2) Recessionary weakness in the U.S. labor market has never occurred in a vacuum. It has always been confirmed by weakness in business fixed investment.
Both those statements suggest the economy is holding together today. Worth noting, with the latest US GDP revisions, corporate profits were up +4.5% quarter-over-quarter (9.3% year-over-year) in Q3 to over $4 trillion.
All That Shines
In real terms, the price of gold has more than doubled in the past two years, going far beyond past prior peaks in the half century since the United States went off the gold standard and floated the dollar. Over that period, the price of gold has been well explained by inflation, interest rates, and exchange rates – until now.
Inflation has moderated, the dollar remains relatively firm, and the US 10y Treasury remains above 4%. All three of these are ingredients for a lower, not a higher, price of gold. Previously, the rally in gold has been driven by central bank buying that has de facto squeezed the market. Over the past fifteen years, central banks globally have accumulated more than 5,500 tons of gold. More than 50% of this went into the China Bloc vaults, and less than 15% to the US Bloc. This central bank hoarding equals roughly a tenth of the investment gold stock.
Currently, worries about debasement, de-dollarization, and diversification have gripped the financial market since the end of 2024, leading global investors to now scramble for fewer ingots. Unsurprisingly, prices have soared, and won’t likely reverse until either worries abate or supply responds. The former seems unlikely in the near term, and the latter is slow and difficult. Here’s a chart of the price of gold dating back to the early 1970s when we left the gold standard.
Mountains of Debt
The following piece was excerpted in full from Jason De Sena Trennert of Strategas Research Partners. We thought it might provide our readers with some worthwhile perspective in what has otherwise been a very exhaustive few weeks of geopolitical headlines thus far in 2026.
“Anyone who works in the financial markets, the media, or who simply follows the news is probably both simultaneously exhausted and fascinated by the events of the last three weeks. In that time, America launched military operations in Venezuela, provided public support for those protesting in Iran, and made what could only be described as a hostile bid for Greenland, an autonomous territory of the Kingdom of Denmark. Whew.
While it was by no means universally supported, America’s interventions in Venezuela and Iran were largely tolerated because they were targeted at corrupt and brutal dictatorships. Few are shedding any tears for Nicolas Maduro or the ayatollahs. But when it comes to Greenland, people of all political persuasions thought that President Trump had gone too far, at least in the style in which he discussed an American acquisition of the world’s largest island at 836,000 square miles. There were many motivations ascribed to the President’s actions over the last week, ranging from rank mercantilism to mental illness.
But there may be another reason the President may be seeking to extend America’s reach abroad, especially when it comes to countries rich in natural resources – it needs to find ways to defray its accumulation of $38 trillion in debt since its founding in 1776. Many reading this may think that this gives the Administration too much credit for strategic thinking, but foreign adventures are not historically uncommon for countries who find themselves in, let’s say, arrears. It may not be the primary motivation for America’s relatively newfound expansionary tendencies, but it doesn’t hurt.”
Mega-Unicorns
A unicorn is defined as a privately held company with a valuation of $1b or higher. But that is a tiny amount in comparison to the 8 VC-backed companies that are now valued above $100 billion on secondary markets! Private market investors are no doubt eager to test the public markets with some of these names at some point in 2026. Both SpaceX and OpenAI have teased possible offerings later this year. That said, to us, these monster private market valuations underscore the importance of having private market exposure as part of your investment plan.
Economic Funnies
Crazy Stats of the Week
- Technology and Tech related items’ share of US fixed investment is at a record high today, with no signs of an impending slowdown.
- In every single FOMC meeting since 2009, the Fed has done exactly what the market was expecting it to do heading into the meeting. The bond market is now pricing in a 2.8% chance of a rate cut next week. The Fed will hold rates at 3.50-3.75%. No cut.
Quote of the Week
“A stock market that is making new highs is telling you that the economy is improving and that the demand for goods and services is increasing.”
– William O’Neil
Calendar of Events to Watch for the Week of January 26th
Earnings reports remain in full swing with the key focus next week on the first look at (4) of the “MAG-7” names, Microsoft, Meta, Tesla, and Apple. There will be plenty of other notable prints as well as we hit peak earnings week for the season.
Next week’s January Fed meeting ends on Wednesday afternoon with the release of the policy statement and Chair Powell’s press conference. The Fed is widely expected to hold, with markets pricing less than a 5% chance of a rate cut. The Fed should be comfortable waiting, as there has not been much change around either inflation or the labor market in the past month. Elsewhere, Trump continues to say he will make a Fed Chair decision soon, and we suspect he might want to make it next week, just ahead of the Fed meeting. Anything to bring some chaos and uncertainty to the process.
US economic data releases will be highlighted by Durable Orders on Monday; Weekly Jobless Claims, Productivity, and Unit Labor Costs on Thursday; and we wrap the week with the Producer Price Index (PPI) on Friday. All in all, we expect earnings and the Fed to be the primary drivers of risk sentiment next week.
Monday 1/26 – US Durable Goods for November are expected to post a monthly 1.0% increase, with the less volatile Ex-Transports dataset expected to post a 0.2% increase.
Tuesday 1/27 – The January Richmond Fed Index is expected to show a modest -4.5 contraction for the month. The November Cash-Shiller Home Price Composite is expected to post a 1.1% increase.
Wednesday 1/28 – The Fed meets today and is expected to deliver NO rate cut at this time. Jerome Powell’s press conference is sure to move markets…as it usually does…and don’t be surprised if President Trump doesn’t look to pre-empt this meeting by announcing his nominee to assume Powell’s position ahead of this meeting.
Thursday 1/29 – Q3 Unit Labor Costs are expected to post a -2.0% contraction for Q3. The November Trade Balance is expected to show a -$50.5b deficit, and the weekly jobless claims data will be watched for any signs of deterioration that could feed into the Non-Farm payrolls reports going forward.
Friday 1/30 – The Producer Price Index (PPI) for December is expected to post a headline 0.3% monthly increase, with the Core (Ex-Food/Energy) expected to post a similar 0.3% monthly increase.
Source: MarketWatch / FactSet (January 2026)
