Decoding Discombobulations

North American equity markets started the year on a positive note with the S&P 500 Index up by ~+1.4% and S&P TSX Index by ~+0.70% for month of January. The returns on fixed-income assets were more muted for the month with aggregate fixed income indices in green by +0.11% in the United States and +0.54% in Canada. That said, the month was anything but uneventful. At the start of the year, the United States launched a military operation in Venezuela and captured the sitting president of the country, Nicolas Maduro, and his wife Cilia Flores, on charges of narco-terrorism. While we think the event had the potential to spook the investors; the market reaction was as uneventful as the resistance faced by United States military in Venezuela. The United States president claimed use of a new weapon “The Discombobulator”, which allegedly disabled the Venezuelan military equipment and rendered the military/security personnel incapacitated by causing confusion and disorientation. The event met with limited criticism from other countries, and it became clear very soon that the likelihood of this becoming a drawn-out conflict is very low. Consequently, capital market’s reaction was merely a shrug on the development.

However, that was not the only discombobulation of the past few weeks. The price action witnessed for gold, silver, bitcoin and software sector could easily be classified as ones that had the potential to have similar kind impact on investors. Gold prices moved up by ~+25.41% during the month before crashing by ~-14% and silver prices jumped by ~+62.8% before crashing by ~-32.1%, during 29th January to 2nd February (See Figure 1). Bitcoin prices that had already seen a drawdown of ~-33% during October-November 2025, witnessed renewed selling pressure starting 29th January and is down by -25% as of 11th February (See Figure 2). The software sector has been under pressure since November last year and is facing fresh drawdown on concerns that developments in artificial intelligence tools will make the software sector obsolete (See Figure 3). In our previous updates, we alluded to the likelihood that in 2026 the markets will begin to discriminate between AI winners and AI Losers. Thus far, we note the selling in the software sector has been indiscriminate. After the dust settles, we think the recent price action will provide the opportunity to pick up quality assets on sale. Similarly, the fundamental arguments in favour of gold and silver prices to appreciate also remain intact.

Figure 1: Gold and Silver (USD)

Source: Bloomberg

Figure 2: Bitcoin (USD)

Source: Bloomberg

Figure 3: The S&P North American Technology Software Index

That said, we do not rule out the possibility of more dizzying price moves in pockets of markets as the year progresses. Overall net positive economic data and expected earnings growth of the corporates for the year makes a case for constructive outlook for the equity markets for 2026. However, layering on the potential for more geopolitical tensions and unexpected announcements from the United States as the mid-term elections approach; we now have an environment that is ripe for more potential discombobulation, in our view. For example - The CUSMA (Canada-United States-Mexico) trade deal is up for its first review by July 1^st and the news flow around US President’s threat to block opening of Gordie Howe International Bridge connecting Detroit to Windsor; and him considering withdrawing from the CUSMA deal has started to hit the tape. If the performance of Republicans in the recent special elections is any indicator where even traditionally red districts have shifted to blue, Democrats appear to have an upper hand in upcoming mid-term elections. The Trump administration is not oblivious to this, which explains somewhat softening up on its stance on immigration policies recently. As the elections approach, we can expect more announcements to appease the voting base and/or perhaps escalate tensions with international partners to deflect their attention from domestic issues. This should bring about more volatility, in our opinion.

The Bank of Canada and the US Federal Reserve both decided to hold the policy rates at their current levels, +2.25% and +3.75%; respectively. Bank of Canada governing council said that United States’ actions have increased uncertainty and thus the central bank can not be sure if the next move is likely a hike or a cut. The US Federal Reserve said that the US economy has been stronger than expected and labour markets have shown signs of stabilization thereby allowing the central bank to move with caution on any future adjustments. The Fed chair also maintained that he remains confident that the Federal Reserve’s can maintain its independence. The US President announced his next Fed chair pick, Kevin Warsh, which also helped calm investors nerves on the topic of Fed’s independence. Kevin Warsh served as member of Federal Reserve Board of Governors from 2006 to 2011 and is known for being a strong proponent of Fed’s independence. He also has the reputation of being a hawk, i.e., propensity to side with higher interest rates to control inflation. Though his recent comments suggest he prefers to see lower interest rates as he believes risks to inflation are on the downside. If inflation is contained, Kevin Warsh’s will find the job easy, however, if inflation starts to increase; he will likely find himself at odds with the US President’s wish to lower interest rates. We think the markets will have difficulty reading the likely move in such a scenario. We expect the markets will get more clarity on his approach once he assumes the position.

Overall, we continue to see potential for more volatility during the year. Nevertheless, we note that market participation is broadening; economic data remains constructive and corporate earnings growth story is pointing towards another positive year. We think staying diversified to mitigate volatility and nimble to pick dislocated assets is the best way to navigate through any discombobulations that could hit the markets along the way.

Source: Bloomberg

Vipul Arora is a Portfolio Manager with CI Assante Wealth Management Ltd. The opinions expressed are those of the author and not necessarily those of CI Assante Wealth Management Ltd. Please contact him at 613-258-1997 or visit ofarrellwealth.com to discuss your circumstances prior to acting on the information above. CI Assante Wealth Management Ltd. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. Insurance products and services are provided through Assante Estate and Insurance Services Inc