Stock markets have shown resilience early in 2026, building on strong gains from prior years, sentiment is positive but it is being tested by renewed tariff threats from President Trump (specifically targeting Canada and South Korea) and a looming January 30 U.S. funding deadline, which is keeping volatility elevated. The US dollar is testing a key support, an indication the downtrend in the US dollar will resume.
A weaker dollar typically lifts commodity prices (priced in USD), which can support resource-related stocks, though it may add inflationary pressure. We can see metals and other commodities are rallying strongly while the dollar declines. As the dollar declines this will put pressure on US stocks as foreign investors sell US stocks and treasury bonds.
I think if the dollar continues to fall at a time when the economy becomes stronger, inflation will rise, this could explain why bond yields are firm and about to move higher. Investors will notice that after the strong rally in 2020-2023 the US 10Y yield has been going sideways. This set up is a pause in the uptrend, this suggests the next move is a rally above 5%. Stock investors won’t like it, this could be one of the reasons the stock market will correct in 2026