U.S. markets are closed Monday for Martin Luther King Jr. Day, compressing an unusually dense calendar of risk events into four trading sessions. By Friday, investors will have absorbed new Trump tariff threats targeting NATO allies, a Core PCE inflation reading that could reshape Federal Reserve expectations, flash PMI data signaling January business conditions, and earnings from Netflix, Procter & Gamble, Johnson & Johnson, and Intel.

The timing is deliberate chaos. Markets barely had time to digest the previous week's developments before Trump announced Saturday that eight NATO allies would face 10% tariffs starting February 1, rising to 25% by June unless they agree to support U.S. acquisition of Greenland according to Fortune. On Monday, he added that countries doing business with Iran would face 25% duties on trade with the U.S., threatening to unravel a fragile tariff ceasefire with China.

After a turbulent 2025 that raised average U.S. import taxes to 16.8%, the highest since 1935 according to the Tax Foundation, markets had been hoping 2026 would offer stability. That hope lasted three weeks.

Tariffs Return to the Agenda Despite 2025 Deals

The new levies come despite a trade deal reached in July 2025 that set a 15% tariff on most EU products and obligated Europe to invest hundreds of billions of dollars in the U.S. according to Fortune. EU leaders are expected to convene for an emergency meeting in Brussels on Thursday to explore options, including implementing a package of tariffs on 93 billion euros worth of U.S. imports that could automatically take effect February 6 following a six-month suspension according to Tickmill.

Markets have so far reacted with unusual restraint. The dollar weakened and precious metals strengthened, but the scale of the reaction appears modest according to Tickmill. Part of this reflects the U.S. holiday limiting trading activity. Part may reflect investor belief in what some call TACO: Trump Always Chickens Out. The assumption is that initial threats rarely match final outcomes.

That assumption carries risk. Treasury Secretary Bessent remarked Friday that Europeans project weakness while the U.S. projects strength. Heading into Davos week, the macroeconomic landscape will be heavily influenced by how this standoff evolves.

Core PCE and PMI Data Will Test Inflation Assumptions

Thursday brings the Core PCE Price Index, the Federal Reserve's preferred inflation measure. Consensus expects a 0.2% month-over-month increase according to FX Empire. Any surprise to the upside would complicate the Fed's path toward additional rate cuts in 2026.

The Federal Reserve was anticipating continued moderation in inflation this year as policymakers assumed tariffs would deliver a one-time price jolt rather than sustained upward pressure. A new flurry of import taxes could put that expectation at risk and jeopardize future rate cuts if inflation remains stubbornly above the Fed's 2% target according to Fortune.

Friday delivers flash PMI readings for both manufacturing and services. Consensus expects manufacturing PMI at 52.1 and services PMI at 52.8 according to The Rio Times. The January data will be closely analyzed to determine whether slower growth trends observed in December have persisted at the start of 2026, particularly given heightened geopolitical tensions according to S&P Global.

Selling price and input cost data within the PMI releases will provide key insights into tariff pass-through effects. Job market indicators have disappointed in recent months, reflecting subdued business confidence.

Netflix Earnings Lead a Packed Corporate Calendar

Netflix reports Q4 2025 results Tuesday after the close, with analysts expecting earnings of $5.45 per share on revenue of approximately $11.97 billion, representing 17% year-over-year growth according to TipRanks. The company's guidance from Q3 projected $11.96 billion in revenue and 23.9% operating margin.

Investor focus extends beyond subscriber numbers, which Netflix has de-emphasized. The market is watching ad-tier revenue progress, margin trajectory, and any updates on the proposed $82.7 billion Warner Bros. Discovery acquisition that has weighed on the stock since December according to EBC Financial Group. Options traders are pricing a 7.78% move in either direction following results.

Thursday brings Procter & Gamble, Johnson & Johnson, GE Aerospace, Abbott Labs, Freeport-McMoRan, and Intel after the close. These reports will signal whether consumer staples can sustain pricing power, whether healthcare spending remains resilient, and whether the AI infrastructure buildout continues supporting semiconductor demand.

Friday rounds out the week with Schlumberger and Booz Allen Hamilton, offering reads on energy services and government contracting respectively.

The Counterargument: Markets Have Learned to Ignore the Noise

There is a reasonable case that this week's risks are overstated. Markets have shown remarkable composure in the face of geopolitical tensions, renewed scrutiny of the Federal Reserve, and new policy proposals according to FX Empire. Investor focus remains firmly on fundamentals: steady growth, easing inflation, and robust corporate earnings.

Bank of America highlighted an exceptionally upbeat forecast for 2026 GDP growth at 2.8%, well ahead of consensus at 2.1% according to Fortune. Key drivers include easier fiscal and monetary policy and expectations of more growth-friendly trade policy despite the current headlines.

The Fed's most recent Beige Book survey showed improving sentiment. Contacts reported an abatement of tariff-related uncertainty from a combination of stabilized policy and their own adjustments. Firms have adapted supply chains, built inventory buffers, and passed costs where possible.

Wall Street's median target puts the S&P 500 at 8,011 by year-end, implying 15.5% upside from current levels according to Motley Fool. Analysts expect S&P 500 earnings growth to accelerate to 15.5% in 2026, with information technology leading at 30.4% growth.

What to Watch This Week

The compressed calendar creates asymmetric risk. If tariff tensions escalate, PCE surprises hot, or Netflix disappoints, markets have limited time to digest before the weekend. If data comes in benign and earnings beat, the relief rally could be sharp.

For investors, the key is separating signal from noise. The tariff headlines generate volatility but have repeatedly failed to derail underlying earnings momentum. Corporate profits drove double-digit S&P 500 gains in 2024 and 2025. The question for 2026 is whether that momentum can survive a policy environment that seems designed to test it.

The week ahead will provide early answers.