Markets continued to climb in early 2026 despite headline risks, valuation concerns, and sharp sector corrections. Equity indices have maintained momentum on the back of strong corporate performance, but high risk sectors such as software stocks, precious metals and cryptocurrencies have corrected sharply revealing cracks in a rally that has lifted risk assets for the past few months. This is a classic example of markets melting up, where asset prices climb slowly upwards while suffering from major corrections on a wall of worry of high market valuations.
India Equities Rally on Historic Trade Agreements
In a milestone for global trade, India moved to solidify its role in the global economy through two major trade agreements in early 2026. First, India concluded a landmark Free Trade Agreement with the European Union, ending nearly two decades of negotiation. The deal eliminates or dramatically reduces tariffs on over 96% of bilateral trade, potentially doubling EU exports to India.
A week later, India and the United States reached a major trade agreement that significantly cuts tariffs on Indian exports and lowers barriers. Under the deal, tariffs on many categories are now being reduced to about 18%, down from the previous 50%. These twin developments position India at the centre of a rapidly shifting trade landscape, providing new export momentum and giving a boost to the India stock market.
Gold and Silver: Record Moves Followed by Sharp Corrections
Precious metals surged into early 2026 after strong demand in late 2025. Gold and silver reached all-time highs, driven by safe-haven flows, central-bank buying, and risk aversion in other markets. However, this rally did not follow a straight line. Late January brought one of the sharpest corrections in recent decades, with gold falling as much as 12% in a single day and silver tumbling 30% in the same hours.
This extreme price action erased nearly $1.7 trillion in combined gold and silver market value in minutes. Yet these metals remain structurally supported by safe-haven demand and policy uncertainty, suggesting that corrections may offer tactical opportunities even as longer-term drivers stay intact.
Market Crashes - Software Stocks and Cryptocurrencies
Major equity benchmarks have extended gains in early 2026, supported by resilient earnings and encouraging macro data. While broad indexes have moved higher, software and certain high-valuation tech names have suffered steep declines, with software stocks correcting around 25% from their recent peaks. This is one of the most significant pullbacks in this segment since the peak enthusiasm for AI-linked software stocks. Such corrections reinforce how quickly investor sentiment can shift in a market rallying on the back on a high valuation.
The weakness in risk assets is not limited to precious metals or software. The cryptocurrency market has seen significant drawdowns as well with Bitcoin falling 44% from earlier highs, with Bitcoin trading below key resistance levels. Many analysts describe the current crypto landscape as a deep drawdown phase, with Bitcoin and other major digital assets re-testing lower support zones amid broader risk-off sentiment.
Although some software segments and cryptocurrencies have corrected sharply, the core AI and semiconductor investment theme remains strongly supported by earnings from leading hardware providers and broader tech demand. Samsung Electronics reported record quarterly results, driven by outsized AI memory chip demand that lifted both sales and margins to all-time highs. Nvidia also continues to deliver exceptional results, with recent quarters showing record revenue growth of more than 60% year-over-year in its AI and data-centre segments.
Portfolio Performance & Positioning Strategy
The portfolio delivered a solid performance in January, with Cash returning +1.62% and SRS returning +1.74%. In contrast, the CPF-OA portfolio lagged, posting a -0.19 % return. One of the reasons for the underperforming of CPF-OA is the underperformance of Franklin US Opportunities Fund which has massively underperformed in the Q4 of 2025. The performance did not pick up in Jan 2026 and I have decided to switch to Infinity US 500 Stock index, which was recently approved by CPF board to be included in the CPFIS scheme. The best performing sector for January was Gold returning 21% in a single month.
The combination of strong AI earnings, sharp swings in precious metals, and corrections in software stocks and cryptocurrencies highlights the volatility of this “Melt-Up” market. While global equities continue to climb a wall of worry, recent sell-offs in higher-risk assets suggest investors are skittish and ready to exit at the first sign of trouble. This underscores the importance of diversified positioning — balancing growth with defensive allocations, selectively focusing on sectors with reasonable valuations, and actively monitoring macro catalysts and market leadership.
At present, the market is moving sideways, searching for clear direction. It may be prudent to observe and assess the evolving trends before committing heavily to risk assets.
Down the fund factsheet for the month here.
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