🌟 Steady Start as Markets Digest Year-End Gains

Markets closed the holiday-shortened trading period with mixed results. After three consecutive years of double-digit gains, investors appear to be pausing for breath, with caution creeping in amid lingering inflation concerns and expectations of a slower pace of interest rate cuts. While UK equities celebrated a historic milestone, US markets showed signs of fatigue as mega-cap tech stocks lost momentum and traders considerd their outlook for the year ahead.

📈 Weekly Scoreboard

Index	Weekly Change (%)	Current Level
S&P 500	+0.19%	6,858.47
Nasdaq Composite	-0.03%	23,235.63
Dow Jones	+0.66%	48,382.39
FTSE 100	+0.20%	9,951.14

Data as of Friday, 3 January 2026

🌍 Global Drivers

The week’s performance may reflect a market in transition. The Federal Reserve’s December meeting minutes revealed a more cautious stance than expected, with policymakers signalling only one rate cut expected in 2026 compared to earlier projections of two or three. This hawkish tilt pushed Treasury yields higher, with the 10-year note climbing to 4.19%, which weighed on rate-sensitive sectors. Inflation remains the central bank’s primary concern, particularly as core inflation came in at 2.6% in November, still above the Fed’s 2% target.

Energy markets told a different story, with crude oil prices remaining under pressure despite OPEC+ confirming plans to pause production increases through March 2026. Brent crude settled around $60.75 per barrel, down over 20% from last year, as concerns about oversupply and weak seasonal demand outweighed geopolitical risks.​

Meanwhile, gold extended its remarkable rally, trading near $4,332 per ounce after posting its strongest annual gain in over 40 years (up 64% in 2025). The precious metal continues to benefit from central bank buying, geopolitical uncertainty, and expectations of lower borrowing costs ahead.

🇬🇧 UK Corner

The FTSE 100 kicked off 2026 with a bang, briefly crossing the symbolic 10,000-point barrier for the first time in its history before settling at 9,951 points. Defence stocks led the charge, with Rolls-Royce surging 3.4% and BAE Systems gaining 2.5%, reflecting continued investor appetite for the sector after a strong 2025.

The Bank of England cut its base rate to 3.75% in December, down from 4%, marking the lowest level in nearly two years. However, the vote was more divided than expected (5-4), suggesting policymakers remain nervous about sticky inflation, which stood at 3.2% in November. Markets now expect two additional quarter-point cuts in early 2026, bringing the base rate to 3.5% by mid-year.

UK businesses, however, are feeling the pinch. A third of trading firms cited economic uncertainty as their top challenge in early December, the highest level since October 2022, while labour costs and material prices continue to rise. With the Budget’s £26 billion in tax increases and frozen income tax thresholds weighing on disposable income, UK growth is forecast to slow from 1.4% in 2025 to 1.2% in 2026.

🏦 Key Asset Movers

GBP/USD: The pound held steady at $1.3458, virtually unchanged from the previous week but up 8.3% over the past year. Sterling’s resilience reflects improving economic sentiment and the Bank of England’s cautious approach to rate cuts.

Brent Crude Oil: Oil prices remain under pressure, closing the week at $60.75 per barrel—down 20% year-on-year. OPEC+’s decision to pause production increases through Q1 2026 reflects concerns about oversupply rather than confidence in demand recovery.​

Gold: The yellow metal continues its historic run, trading at $4,332 per ounce as investors seek safety amid policy uncertainty and geopolitical tensions. With real yields remaining subdued and central banks maintaining their buying programmes, gold’s bullish momentum looks set to continue.

📰 Key Headlines

1. FTSE 100 Breaks 10,000 for First Time (Reuters) – The UK’s blue-chip index crossed the historic threshold on 2 January, driven by defence stocks and a weaker pound, marking the index’s best annual performance since 2009.
2. Fed Signals Slower Rate Cuts in 2026 (Reuters) – December meeting minutes revealed policymakers expect only one rate cut next year amid persistent inflation concerns, prompting Treasury yields to rise and stocks to retreat.
3. Tesla Deliveries Miss Estimates (Yahoo Finance) – The EV maker reported Q4 deliveries of 418,227 vehicles, below expectations of 440,907, as European weakness and the end of tax credits weighed on sales.youtube​
4. Bank of England Cuts Rates to 3.75% (BBC) – The BoE delivered its first cut since August in a divided 5-4 vote, signalling caution as inflation remains above the 2% target at 3.2%.
5. OPEC+ Pauses Output Increases Through Q1 2026 (Reuters) – The oil cartel confirmed it will hold production steady through March amid concerns about oversupply and weak seasonal demand.
6. Gold Posts Best Annual Gain in 40 Years (Trading Economics) – The precious metal rose 64% in 2025, driven by central bank buying, geopolitical uncertainty, and expectations of lower interest rates.
7. UK Businesses Flag Economic Uncertainty (ONS) – One-third of UK firms cited economic uncertainty as their top challenge in December, the highest level since late 2022, as Budget tax hikes and labour costs bite.

⚖️ Investor Sentiment Dashboard

Market sentiment at the start of 2026 reflects a cautiously optimistic “Risk-On” posture, though conviction appears thinner than in recent months. The VIX closed at 14.51, down from 14.95 the previous session and well below its long-term average, suggesting low fear levels in equity markets. Meanwhile, the AAII Bull-Bear survey showed bullish sentiment jumping to 42% (up from 37.4%), while bearish sentiment fell sharply to 27%, indicating renewed optimism among individual investors heading into the new year. The CNN Fear and Greed Index registered 45, firmly in “Neutral” territory. Taken together, these indicators suggest investors are willing to take on risk but remain watchful for any signs that inflation or rate policy could derail the rally. The market is neither euphoric nor fearful—it’s simply waiting for clearer direction.

📅 Next Week’s Radar

• Friday, 10 January (13:30 GMT): US Non-Farm Payrolls (December) – This delayed jobs report will provide critical insights into labour market health after November’s modest 64,000 gain. Markets expect around 50,000 new jobs, with the unemployment rate holding at 4.4%.
• Monday, 13 January (13:30 GMT): US Consumer Price Index (December) – Inflation data will be closely watched after November’s 2.7% reading. Any upside surprise could push back expectations for Fed rate cuts.
• Tuesday, 21 January (07:00 GMT): UK CPI Inflation (December) – With inflation at 3.2% in November, this release will shape Bank of England rate expectations for early 2026.
• Saturday, 4 January: OPEC+ Meeting – The eight-country steering group will review market conditions and compliance with production quotas. Any surprise policy shift could move oil prices.

⚡ The Final Take

Markets have entered 2026 with a mix of optimism and caution—hardly surprising after three years of stellar gains. The week’s muted performance reflects a market taking stock, digesting the reality that interest rate cuts may be slower and fewer than hoped. For UK DIY investors, the key takeaway is: while sentiment remains constructive and fundamentals are broadly supportive, the path ahead may be bumpier than the smooth ride of recent years. Periods of consolidation often set the stage for the next leg higher.

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© Clearly Investments Ltd. Educational information only. This is not investment advice.