The final trading week of January saw global benchmarks diverge as the initial 2026 rally encountered significant structural resistance. While the Hang Seng Index retreated from multi-year highs under the weight of a cooling AI sector, the TA-35 largely held its ground, benefiting from a unique blend of domestic industrial strength and strategic geopolitical developments.

Profit-Taking and AI Fatigue Hit Hong Kong

The Hang Seng Index faced its steepest correction of the year on Friday, falling 580.99 points as the tech-led euphoria of early January began to fade. Markets were hit by a “double whammy” of disappointing Microsoft earnings and a broader reassessment of AI capital expenditure, which sent the Hang Seng Tech Index down 2.1%. Despite this late-week slump, the HSI still managed to secure a 2.4% weekly gain, suggesting that the underlying structural support remains intact even as short-term traders lock in gains.

Israel’s Defensive Play Amid Regional Tensions

In Tel Aviv, the TA-35 navigated the week with a more stable trajectory, closing Friday at 4,003.67. Sentiment was bolstered early in the week by the Bank of Israel’s decision to hold rates at 4% while projecting a robust 5.2% GDP growth for 2026. Further support arrived on Friday with the announcement of a $6.67 billion U.S. arms sale, including Apache helicopters and tactical vehicles, which provided a tailwind for the defense and industrial sectors. These factors helped the local market decouple from the more aggressive selling seen in Wall Street’s technology-heavy indices.

Global Macro: The “Fed Nominee” Effect

A critical driver for global volatility this week was the speculation surrounding the next U.S. Federal Reserve Chair. The nomination of Kevin Warsh triggered a mixed reaction; while some investors hope for a shift toward deregulation, others fear a more aggressive approach to inflation, which pushed U.S. Treasury yields to fluctuate and the U.S. Dollar Index to soften. This macro uncertainty prompted a shift into safe-haven commodities, with Gold hitting a fresh record of $5,594.82 before retreating as the dollar stabilized late Friday.

The outlook for the coming weeks will likely be defined by a shift from “momentum” to “quality.” Investors should closely monitor the 27,000 support level for the HSI and the 4,070 resistance for the TA-35 as potential inflection points. With China’s manufacturing PMI data on the horizon and the February 23 Bank of Israel interest rate meeting approaching, the market is entering a phase of data-dependent consolidation. Risks remain tilted toward geopolitical escalations in the Gulf, which could further drive energy prices and influence the inflation outlook for the remainder of the quarter.