Global risk assets began the year on a positive note. Global equities remained robust, with international assets again leading the way with the help of continued U.S. dollar weakness.
Non-U.S. strength aside, January saw a rotation in market leadership. Mega-cap U.S. stocks faltered, weighed down by weakness in large IT software and service companies, while small- and mid-cap stocks saw renewed investor interest. Energy and consumer staples names also came back into favor after a sluggish 2025.
The Federal Reserve held rates steady following prior cuts, though policymakers remain divided on the path forward.
President Trump nominated Kevin Warsh as the next Fed Chair, and yields moved modestly higher during the month, pressuring longer-duration Treasuries. Broad bond returns were muted, with mixed results across credit sectors, while municipals and global bonds outperformed.
Real assets generally outperformed, led by commodities and resource equities amid energy market volatility and geopolitical concerns. Precious metals, clean energy, infrastructure, and global REITs posted gains, though office and single-family rental REITs struggled.
Strong earnings and economic growth suggest a bullish sentiment, but AI spending concerns, fiscal pressures, Fed caution, and geopolitical uncertainty could challenge markets.
Equities
Domestic equity markets started 2026 on a positive note. The S&P 500 Index posted a modest 1.5% gain for the month, the ninth consecutive positive result for the index, while the broader Russell 3000 Index returned 1.6%. Results were more favorable at the lower end of the market cap spectrum, with the Russell Midcap Index up 3.1% and the Russell 2000 Index advancing 5.4%.
Broad market gains in January came in spite of weakness in the mega-cap space. While Alphabet (+8.0%) and Nvidia (+2.5%) built on strong 2025 returns, January was a challenging month for Apple (−4.6%), Microsoft (−11.0%) and Broadcom (−4.3%). To that end, information technology (−1.9%) was the worst performing sector in January along with financials (−1.9%).
Market leadership in early 2026 came from sectors with lower index representation, most notably energy (+14.3%), and to a lesser degree materials (+9.0%), consumer staples (+7.6%), and industrials (+7.5%). These results help explain the roughly 600 bp gap in performance for the Russell 3000 Growth Index (−1.3%) versus the Russell 3000 Value Index (+4.7%).
While growth meaningfully outperformed value from 2023 through 2025 on the strength of mega-cap stocks, the five-year annualized performance differential through January was only 200 bps, with the growth index up 14.3% on an annualized basis versus 12.3% for the value index.
Developed non-U.S. equities (+5.2%) continued to rally, with the primary drivers of returns in 2025 persisting into the new year. Banks (+7.8%) and aerospace/defense (+9.2%), standouts last year, again posted strong gains in January.
Information technology (+11.3%) was an exception, rebounding sharply in January after lagging the broad market the prior year. There was dispersion across the sector, as semiconductors rose 31.1% on steady demand for memory chips while industries deemed to be AI losers, such as software (−13.4%) and services (−4.8%), faltered. From a country perspective, returns in Japan remained robust, helped by enthusiasm around its large tech names and new pro-growth leadership.
The other notable theme through the first month of 2026 has been the continued weakness of the U.S. dollar (−1.4%). An increase in geopolitical uncertainty, expectations of lower rates in the U.S., and comments from President Trump contributed to further depreciation of the greenback.
Emerging markets equities (+8.9%) continued to rally in 2026, supported by strength in the semiconductor space and a surge in commodity prices and currencies. Korea (+28.1%) was among the strongest performers within emerging markets in January. The KOSPI Index reached 5,000 for the first time in its history, led by semiconductor giants Samsung (+34.0%) and SK Hynix (+39.7%). Brazil (+16.8%) and South Africa (+8.3%) also posted strong returns, benefiting from the rally in commodity prices that pushed equities to record levels. In contrast, India (−5.1%) detracted from relative performance, as elevated valuations and concerns around near-term earnings momentum weighed on equities.
EM resurgence has resulted in renewed investor interest. EM equity funds reported over $39 billion in foreign and institutional inflows in January, one of the strongest starts to the year in two decades, as investors diversified away from the U.S. and toward Asia and Latin America.
Fixed Income
Following three rate cuts in 2025, the Federal Reserve held rates steady at its January 27-28 meeting. The decision came as no surprise, as markets are not pricing in another cut until around June, though the Committee remained divided on the path ahead. Stephen Miran and Christopher Waller dissented, each favoring a 25-basis point cut.
Major news followed in the days after the meeting, as President Trump announced Kevin Warsh as his nominee to succeed Jerome Powell as Fed Chair when Powell’s term ends in May. Market reaction was generally positive, with Warsh viewed as a conventional choice, though the nomination could face delays after Senator Thomas Thilis expressed that he would withhold support until the criminal investigation into Powell is resolved.
Following the announcement, long-end yields moved modestly higher, with the 10 year Treasury yield rising +3 basis points to finish the month at 4.26%. Overall, in January, the 10 year yield rose 9 basis points and the 2 year yield increased 5 basis points.
CPI progress stalled in January—with December’s 2.7% reading matching the prior month—and the labor market showed signs of stabilization, as the unemployment rate edged down to 4.4% from 4.5%.
As yields rose during the month, longer-duration Treasuries underperformed within fixed income. Long Treasuries and Treasuries in the 5–10 year range posted returns of −0.5% and −0.3%, respectively, weighing on the Bloomberg U.S. Aggregate Index, which finished the month essentially flat at +0.1%.
Credit performance was mixed. Investment-grade corporates returned +0.2%, high-yield corporates gained +0.5%, and leveraged loans returned −0.6%, with modestly tighter credit spreads.
Spread movements were more pronounced in the securitized space, particularly Agency MBS, where spreads tightened from 22 basis points to 16 basis points, contributing to a +0.4% return. CMBS also returned +0.4%, while ABS returned +0.2%. Municipals and global bonds were standout performers, outpacing other sectors with returns of +1.0% and +1.1%, respectively.
Real Assets
Real assets generally outperformed broader markets in January, with particular strength in resource related categories including commodities (+10.4%) and resources equities (+12.0%).
WTI Crude increased +13.6%, ending the month above $65 dollars per barrel. The run-up was largely due to fears that the U.S. could invade Iran, one of OPEC’s top producers. Natural gas (+17.8%) had a volatile month as a severe cold snap briefly pushed prices above $7 per MBTU, levels not seen since 2022. Subsequent reports predicting a warmer-than-
average February caused a pullback and natural gas finished the month at $4.30 per MBTU. The commodity’s sensitivity to near-term weather illustrates how growing demand from data centers and LNG exporters has created tightness in the market, where the effects of supply shocks are intensified. MLPs (+8.0%), whose performance is largely tied to volumes, benefited from increased domestic natural gas needs.
Global REITs gained +3.8%, led by U.K. REITs following the BOE’s fourth rate cut of 2025 in late December. Asia REITs (+5.1%) and Europe REITs (+4.9%) also outperformed, with returns aided by a weaker dollar.
U.S. REITs lagged (+3.1%). Data center REITs (+7.2%) and self-storage REITs (+6.3%) saw notable rebounds after a difficult year, and retail gained 4.5%, led by free standing REITs (+7.3%). Meanwhile, despite pockets of strength in various markets, the office sector slid (−2.2%) as debt delinquencies remain at historic highs and over-levered and low-quality assets continue to face headwinds. SFR REITs (−3.3%) also slid following President Trump’s proposed plans to ban institutions from buying single family homes.
Gold (+9.0) and silver (+11.6%) continued their rapid accents, before sharp declines to end the month. The energy (+20.6%) and precious metals (+11.0%) sub-indices outperformed broad commodities, while industrial metals (+5.6%) lagged and agriculture (−0.3%) saw a modest drop.
Metals and mining equities advanced +14.5% on strength in commodity prices. Clean energy equities (+11.2%) saw continued momentum, with Bloom Energy stock up nearly +75% on the heels of its meteoric rise in 2025. Global infrastructure equities advanced another +5.1%, their best month since May 2024, following a year of steady growth.
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