Defensive stocks have gained prominence in early 2026, with the US dollar strengthening and stock indices rising. The DAX, Germany's index, has been particularly driven by increased military spending, with companies like Rheinmetall surging over 20% in 2026 and about 150% in 2025.
This trend is expected to persist in the coming weeks and months following recent geopolitical developments. The United States escalated tensions with Venezuela by seizing President Maduro and a Russian oil tanker. Lockheed Martin's stock, for instance, rose 4.5% on Friday.
Demand for other defensive assets, including gold, silver, the Swiss franc, and the Japanese yen, remains elevated. The Japanese yen faces downward pressure from carry trades despite rising 30-year bond yields. Some market observers attribute this to what they term a "FAFO" narrative, referencing President Trump's intervention in oil markets and disruption of geopolitical balance.
Friday's Non-Farm Payrolls report showed weaker-than-expected growth, with a 50,000 increase versus an anticipated 70,000. This initially pressured the US dollar, but it later recovered to close the day higher. Gold experienced fluctuations but also ended in positive territory.
Traders do not expect interest rate cuts at the upcoming January or March FOMC meetings, despite the disappointing jobs data. According to the FEDwatch tool, probabilities of rates holding steady increased after Friday's trading. Meanwhile, yields on US 30-year bonds have slightly declined.
This situation may offer limited support for the US dollar starting Monday, or at least reduce downward pressure early in the week. The next key data release is US CPI on Tuesday. Following the weak NFP, inflation is also expected to moderate slightly, but this is already factored into markets. Traders see little chance of further rate cuts given global monetary policy stabilization.
Gold is currently in a historically strong seasonal period for gains, with studies indicating high growth probability in the first two weeks of January. Technically, it has rebounded from the 20-day moving average, a dynamic support level, suggesting potential upward movement. Recent price action supports this, with pullbacks being bought and most days in the first week showing bullish momentum for XAUUSD.
Gold maintains solid bullish momentum without being overbought, yet remains below previous all-time highs and the upper Bollinger Band, indicating possible continued gains ahead of Tuesday's CPI report.
The "sell America" narrative has receded, though tech stocks underperform compared to financial and industrial sectors. The Dow Jones and S&P 500 now lead the rally as defensive and energy stocks regain traction amid US-Venezuela tensions. The S&P 500 trails the DAX but could accelerate if military, energy, and defensive stocks drive further gains.
Starting January 12, major financial firms including JPMorgan Chase, Bank of America, Wells Fargo, and BlackRock will report earnings. These results, alongside the US CPI data, may determine the future direction of US indices. If the S&P 500 opens the week positively, continuation chances increase, though current conditions appear neutral. Expectations are for plateaued movement with potential acceleration later in the week as more data on US inflation and corporate profits emerges.