Key Points

• U.S. Markets Steady Ahead of Earnings and Fed: U.S. equities opened a pivotal week on a firmer footing as investors positioned for heavy Big Tech earnings and the Federal Reserve’s policy decision, with sector moves reflecting sensitivity to both earnings guidance and policy headlines.
• China Profits Stabilize but Recovery Uneven: China’s industrial profits returned to modest growth in 2025 after three years of declines, helped by policy efforts to curb price wars, though weak domestic demand and sharp sector divergence highlight a fragile and uneven recovery.
• Asia Attracts Strong Global Capital Flows: Asian equity markets continued to draw robust international inflows, pushing regional benchmarks to record highs and fueling a surge in IPO and deal activity, as investors rotate toward growth opportunities outside the U.S.
• South Korea Hit by Renewed U.S. Tariff Threats: President Trump’s move to raise tariffs on South Korean autos and pharmaceuticals reignited trade uncertainty, pressuring Korean exporters and underscoring the ongoing geopolitical risk premium facing export-oriented Asian markets.

January Economic Calendar

Markets Steady as Earnings Season Intensifies

U.S. equity futures were little changed Monday night after stocks opened the week higher, as investors balanced a strong start to earnings season against rising policy and regulatory uncertainty. The S&P 500 gained 0.5% in the regular session, supported by advances in major technology stocks ahead of key results from Apple, Microsoft, Meta and Tesla, while futures remained flat heading into Tuesday. Sentiment was tempered by sharp after-hours declines in health insurers after the Trump administration proposed keeping Medicare Advantage payment increases near zero for 2027, well below market expectations. Attention now turns to a heavy earnings calendar, the Federal Reserve’s policy decision later this week, and fresh signals on tariffs, with investors increasingly focused on whether earnings momentum can offset political and macro risks.

China Profits Stabilize as Recovery Remains Uneven

China’s industrial profits rose 0.6% in 2025, ending three years of declines, as policy efforts to curb price wars and stronger overseas demand helped stabilize corporate earnings despite weak domestic consumption. December profits climbed 5.3% year-on-year, marking the strongest monthly gain since September, supported partly by pre-holiday production and improving factory activity. However, the recovery remains uneven, with manufacturing and utilities posting gains while mining and energy sectors saw sharp declines, highlighting persistent margin pressure and excess capacity. Analysts say the modest rebound underscores China’s reliance on policy support and exports, with fragile consumer demand and sector divergence likely to constrain a broader and more durable industrial recovery.

Asia Draws Global Capital as Equity and IPO Activity Accelerates

Asian equity markets are seeing a strong influx of global capital, driving record highs and a surge in deal-making across the region. The MSCI Asia Pacific Index has reached fresh peaks, building on gains of more than 25% in 2025, while benchmarks in Japan and South Korea have also hit all-time highs. Robust IPO activity, rising cross-border flows and renewed interest in technology and semiconductors are reinforcing investor confidence, particularly in markets such as China, India, Japan and South Korea. Bankers say investors are increasingly comfortable allocating capital amid geopolitical uncertainty, focusing instead on earnings momentum, policy support and Asia’s growing role in global growth and innovation.

South Korea Tariffs Rekindle Trade Uncertainty

U.S.–South Korea trade tensions resurfaced after President Donald Trump said tariffs on South Korean autos, pharmaceuticals and lumber would rise to 25% from 15%, citing delays in Seoul’s legislature approving a bilateral trade deal reached last year. The announcement weighed on Korean auto stocks, with Hyundai Motor and affiliates falling sharply before trimming losses, underscoring investor sensitivity to renewed policy risk. While South Korean officials said they had not received formal notice, the move highlights how trade disputes remain a live market variable. For investors, the episode reinforces the vulnerability of export-heavy sectors to abrupt shifts in U.S. trade policy and geopolitical leverage.

Conclusion

Global markets are navigating a complex mix of earnings optimism, shifting policy signals and renewed geopolitical frictions. U.S. equities remain supported by resilient corporate results and expectations of a steady Federal Reserve, even as trade and fiscal risks linger beneath the surface. In Asia, improving capital flows and renewed investor interest contrast with uneven economic fundamentals, particularly in China and export-dependent economies facing tariff uncertainty. Together, these dynamics point to a market environment where selective exposure, regional diversification and close monitoring of policy developments are increasingly critical for investors seeking to balance opportunity with risk in 2026.

Investment Insights

• Earnings resilience vs. policy risk: Solid U.S. corporate earnings are supporting equity markets, but elevated tariff uncertainty and political risk argue for selective exposure rather than broad beta positioning.
• Asia attracting global capital: Strong equity inflows and IPO activity across Asia highlight renewed investor confidence, favoring markets with clear growth drivers such as technology and advanced manufacturing.
• China recovery remains uneven: The modest rebound in industrial profits reflects policy support, but weak domestic demand and sector divergence suggest a cautious approach to China-linked assets.
• Trade-sensitive sectors face volatility: Rising U.S.–South Korea trade tensions underscore the need to manage exposure to export-heavy industries vulnerable to sudden policy shifts.