Market Update: 21st January 2026- Uncertainty Takes the Wheel

Markets finally stopped pretending yesterday.

Equities recorded their worst session since October 10th, 2025, as investors collectively decided that “muddling through” was no longer a sufficiently robust investment thesis. By the close, the damage was unambiguous: the S&P 500 fell roughly 2.05%, the Nasdaq dropped close to 2.12%, and the Dow Jones Industrial Average shed just over 2%. In Europe, the STOXX 600 declined around 1.9%, while UK equities were pulled lower in sympathy, with the FTSE 100 down approximately 1.6%.

These were not catastrophic numbers, but they were confident ones. The market knew what it wanted to do, and it did it quickly.

A Growing List of Things Investors Would Rather Not Think About

The underlying problem is not that something went wrong. It’s that too many things might.

Geopolitics, for one, continues to expand its reach into places markets had comfortably ignored. Greenland, long considered strategically important but financially irrelevant has re-entered the global conversation in a way that reminds investors that “out of left field” is still very much in play. Markets dislike surprise guests, particularly when they arrive wearing a geopolitical badge.

Then there are tariffs. Just as investors had convinced themselves that trade wars were a historical artefact best discussed in hindsight and conference panels, tariff rhetoric has returned, dressed once again as a policy option rather than a last resort. Markets remember how this story ends: higher costs, slower growth, and a lot of post-event explanations about “unintended consequences.”

And of course, Davos. The annual pilgrimage to the Alps, hosted by the World Economic Forum, promised dialogue, vision, and coordination. What markets heard instead was a masterclass in conditional optimism. Long-term confidence was plentiful; short-term conviction was not. When leaders sound upbeat about 2035 but cautious about next quarter, equity markets tend to notice.

When the Market Stops Giving the Benefit of the Doubt

None of these factors alone would normally justify a sharp sell-off. Together, they created an environment where investors decided that uncertainty was no longer being adequately priced.
Volatility rose accordingly, not because investors suddenly became convinced things were about to unravel, but because they realised they were underpaid for the risks they were already running.

Protection became fashionable again. Risk reduction followed.

Selling was broad rather than surgical. Growth stocks were hit hardest, but defensives failed to provide the usual sanctuary suggesting this was less about rotating and more about stepping back.

The message was subtle but clear: when the fog thickens, even familiar landmarks become less comforting.

Why This Sell-Off Felt Different

Recent pullbacks had been polite affairs, brief, shallow, and quickly forgotten. Yesterday was neither polite nor forgettable.

Dip-buyers appeared, but without enthusiasm. Late-session selling hinted that investors were more interested in sleeping at night than proving a point. Confidence didn’t collapse; it simply stopped showing up uninvited.

That shift matters. Markets can tolerate bad news. They struggle with open-ended questions.

Bottom Line

At times like this, markets behave much like people confronted with too many opinions and too little clarity: they retreat, reassess, and quietly reduce commitments. It’s not fear it’s fatigue.
This is unlikely to be the beginning of a straight-line decline. But it may well mark the end of complacency. In an environment where geopolitics pops up in unexpected places, trade policy refuses to stay buried, and global leaders speak fluently but cautiously, optimism needs a stronger foundation than habit.

For now, uncertainty is back in charge and charging a higher fee. Investors would do well to pay attention, keep position sizes sensible, and remember that when the outlook is described as “complex,” it usually means the easy money has already been made.

Markets will find clarity eventually. Until then, they are reminding everyone of an inconvenient truth: confidence is optional, but risk is not.

Anyway, till next time, all of you trade safe!

By James Trescothick
Head of Market Research and Market Analysis

Risk Disclaimer: This information is for educational purposes only and does not constitute investment advice. Financial markets involve risks, and past performance is not indicative of future results. Always conduct your own research and seek professional advice before making investment decisions.