Four key market signals to watch

Key takeaways

Corporate bond spreads

They’ve tightened, but that’s not the behavior of a market bracing for imminent deterioration in stocks, in our view.

US dollar weakness

It has weakened in an orderly fashion, and a Danish pension fund’s upcoming sale of US Treasuries is statistically irrelevant.

Inflation expectations

At 2.5%, inflation expectations still fall within what the Federal Reserve (Fed) considers price stability.

Writing weekly commentaries on an airplane is much easier with noise‑cancelling headphones. Flip the switch and all the noise disappears. You’re left with the clarity to focus on what matters. An analogy to markets today is apt. The cacophony is deafening, and investors are struggling to distinguish what market signals matter from what merely sounds urgent.

This year alone, we’ve navigated Venezuela, Iran, questions about the independence of the Federal Reserve (Fed), and even the US possibly acquiring Greenland. The Geopolitical Risk (GPR) Index has been elevated and rising.¹ Yet history reminds us that peaks in geopolitical risk have often been buying opportunities, not exit signals.² For instance, investors who bailed after Liberation Day learned that lesson the hard way, missing April 9, 2025, the third‑best day for the S&P 500 Index in the past 30 years.³ We know what happens when you miss the best days.

So, what deserves attention now? Listen to the market.

Four key market signals to watch

1. Corporate-bond spreads tightened.⁴ Yes, tightened. That’s typically not the behavior of a market bracing for imminent deterioration in stocks.
2. Transportation stocks continued to climb,⁵ suggesting momentum could be building in the US economy.
3. The US dollar weakened, but in an orderly, unremarkable fashion.⁶ Yes, the Danish pension fund’s upcoming sale of US Treasuries made news, but amounts to just $100 million in a $40 trillion market — statistically irrelevant.⁷
4. Three‑year inflation expectations jumped from 2.25% to above 2.50%.⁸ That bears watching. The move likely reflects concerns about tariffs on Europe or the political noise around Fed independence. But with Fed Governor Lisa Cook looking likely to remain in place, some of those fears may be eased. Rising inflation expectations are the one development that could legitimately alter market leadership if the Fed was no longer expected to cut rates this year, or worse, needed to tighten policy. But 2.5% inflation expectations still fall within what the Fed considers price stability. That’s not a flashing red light.

Sharply higher Japanese yields

While the world was focused on the World Economic Forum in Davos, Japanese government bond yields were moving sharply higher, driven by expectations of expanded fiscal support. We interpret this as a Bank of Japan that’s increasingly behind the curve and likely to tighten more aggressively. That could stabilize the yen and support our view that the US dollar has room to weaken against trading partners as the year progresses.

Navigating the volatility

Investors could get nervous with each jolt of turbulence, whether geopolitical, political, or monetary. Or they could do what seasoned travelers do and put the noise‑cancelling headphones on and focus on the destination! The better choice, in our view, remains the latter.

A solid economic backdrop,⁹ relatively stable inflation,¹⁰ and the increasing likelihood of global fiscal policy support, from Europe to China to the US, form a constructive environment for stocks, in our view.

What to watch this week

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Originally Posted January 26, 2026

Four key market signals to watch By Invesco US

 Footnotes

1 Source: Bloomberg, L.P., Economic Policy Uncertainty, Jan. 22, 2026. The Caldara and Iacoviello Geopolitical Risk (GPR) Index reflects automated text-search results of the electronic archives of 10 newspapers: Chicago Tribune, The Daily Telegraph, Financial Times, The Globe and Mail, The Guardian, The Los Angeles Times, The New York Times, USA Today, The Wall Street Journal, and The Washington Post. Caldara and Iacoviello calculate the index by counting the number of articles related to adverse geopolitical events in each newspaper for each month (as a share of the total number of news articles). The Geopolitical Risk Index peaks were Oct. 1962, Jun. 1967, Oct. 1973, Dec. 1979, June 1982, Aug. 1990, Feb. 1991, Oct. 2001, March 2003, March 2022, and Oct. 2023.

2 Source: Bloomberg, L.P., Jan. 22, 2026. See footnote 1. The average return of the S&P 500 Index in the one year following the dates listed in footnote 1 is 15.40%. Past performance does not guarantee future results.

3Source: Bloomberg, L.P., Jan. 22, 2026. The S&P 500 Index returned 9.5% on April 9, 2025, trailing only Oct. 13, 2008 (+11.6%) and Oct. 28, 2008 (+10.4%). Past performance does not guarantee future results.

4 Source: Bloomberg, L.P., Jan. 22, 2026, based on the option-adjusted spread of the Bloomberg US Corporate Bond Index. Option‑adjusted spread (OAS) is a fixed‑income measure that shows how much additional yield a bond offers over a risk‑free benchmark after adjusting for any embedded options (such as the issuer’s ability to call or redeem the bond early).

5 Source: Bloomberg, L.P., Jan. 22, 2026, based on the return of the Dow Jones Transportation Average,™ a 20-stock, price-weighted index that represents the stock performance of large, well-known US companies within the transportation industry. It advanced 1.53% over the five days ended Jan. 22, 2026. Past performance does not guarantee future results.

6 Source: Bloomberg, L.P., Jan. 22, 2026. Based on the US Dollar Index, which measures the value of the US dollar versus a trade-weighted basket of currencies.

7 Source: Bloomberg, US Treasury, AkademikerPension, Jan. 22, 2026.

8 Source: Bloomberg, L.P., Jan. 22, 2026, based on the 3-year US Treasury breakeven rate. A breakeven inflation rate is a market-derived estimate of future inflation, calculated by comparing the yield on a standard government bond (nominal) to the yield on a Treasury Inflation-Protected Security (TIPS) of the same maturity.

9 Source: Federal Reserve Bank of Atlanta, based on the Atlanta Fed GDPNow GDP Forecast.

10 Source: Bloomberg, L.P., Jan. 22, 2026. See footnote 8.

Important information

NA5153178

All investing involves risk, including the risk of loss.

Past performance does not guarantee future results.

Investments cannot be made directly in an index.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.

The Bloomberg US Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes US dollar-denominated securities publicly issued by US and non-US industrial, utility, and financial issuers.

Breakeven inflation is the difference in yield between a nominal Treasury security and a Treasury Inflation-Protected Security of the same maturity.

Monetary easing refers to the lowering of interest rates and deposit ratios by central banks.

The Federal Open Market Committee (FOMC) is a committee of the Federal Reserve Board that meets regularly to set monetary policy, including the interest rates that are charged to banks.

The Geopolitical Risk Index measures adverse geopolitical events based on a tally of articles covering geopolitical tensions from 10 different newspapers.

Gross domestic product (GDP) is a broad indicator of a region’s economic activity, measuring the monetary value of all the finished goods and services produced in that region over a specified time period.

Inflation is the rate at which the general price level for goods and services is increasing.

Option-adjusted spread (OAS) is the yield spread that must be added to a benchmark yield curve to discount a security’s payments to match its market price, using a dynamic pricing model that accounts for embedded options.

The Producer Price Index (PPI) program measures the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services.

Purchasing Managers’ Indexes (PMI) are based on monthly surveys of companies worldwide and gauge business conditions within the manufacturing and services sectors.

The S&P 500® Index is an unmanaged index considered representative of the US stock market.

Spread represents the difference between two values or asset returns.

In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic, and political conditions.

Treasury Inflation-Protected Securities (TIPS) are US Treasury securities that are indexed to inflation.

The US Dollar Index measures the value of the US dollar relative to the majority of its most significant trading partners.

The opinions referenced above are those of the author as of Jan. 23, 2026. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties, and assumptions; there can be no assurance that actual results will not differ materially from expectations.