Is Trump a Master Negotiator or a Blundering Fool?
Investors seem to be ignoring the political debate, celebrating a positive outcome, and searching for more opportunities in smaller stocks.
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Investors are breathing a sigh of relief after news that President Trump has negotiated a framework for a deal regarding Greenland. He has canceled the threat of tariffs and ruled out military action.
While this is positive news for the stock market, many investors are distracted by the surrounding political debate. Is Trump a master negotiator who makes unreasonable demands with a plan to settle for less, or a blundering fool who overreached and was forced to compromise?
The answer to that question may be important for political purposes, but investors should be indifferent to it. The end result is positive, and the price action is favorable. We need to look ahead to how this sets the stage for whatever comes next.
The PCE Catalyst and Global Bond Shocks
What comes next is the PCE inflation news on Thursday morning. This is the most important economic data point ahead of the next Federal Open Market Committee interest rate decision on January 28. According to Fed Fund futures, there is only a 5% chance of a rate cut this time, but recent sharp action in the bond market suggests investors will be highly sensitive to any policy nuances.
Due to the media focus on Trump, Davos, and Greenland, recent volatility in the Japanese bond market has not received as much attention as it might otherwise. Treasury Secretary Bessent described the volatility in the Japanese bond market as a "six-sigma" event and stated that if a similar level of volatility occurred in the U.S. Treasury market, the 10-year yield could skyrocket by 50 basis points.
The bond market has calmed down and rebounded, but events like this can spill over into the U.S. Treasury market. Such a move could trigger a broad stock market reaction, as it would undermine confidence.
Small-Cap Strength vs. Mega-Cap Distractions
The big story in equities continues to be the strength in the Russell 2000 (IWM) small-cap index. As of Wednesday's close, small-caps are up 8.9% for 2026, which extrapolates to an annual return of about 150%. That isn't going to happen, but when there is a move that big and that fast, it is sure to lead to elevated volatility. Be ready to make some moves as the action accelerates.
Many investors have been missing out on the best opportunities in this market because they are being misled by the media's focus on the major indexes and the relative action in the Magnificent Seven (MAGS) . These stocks were safe havens for so long — and the primary obsession of the financial media — that it makes it difficult for some folks to pivot to the new crop of secondary stocks that are currently leading.
Strategy: Look Under the Surface
My best advice is to stay focused on individual stock picking, especially on those names reporting fourth-quarter earnings soon. That is where the opportunities and volatility reside.
The media's obsession with indexes will blind you to what is really going on beneath the surface of a small group of mega-cap names.
We have early strength as we await the PCE inflation news.
At the time of publication, Rev Shark had no positions in any securities mentioned.
