January 2026 Market Recap
Equity Markets
U.S. stocks got off to a solid start in January. The S&P 500 managed to push to new all-time highs during the month before slightly retreating to end the month with a roughly 1.5% gain, continuing the momentum from 2025’s impressive 17.9% return.
What made January particularly interesting was the rotation in market leadership. Smaller and mid-sized companies outperformed their larger counterparts, as the S&P 600 and S&P 400 returned 5.6% and 4%, respectively. The equal-weight S&P 500 also beat the traditional cap-weighted version, having returned 3.4%. This broader participation across the market is generally a healthy sign, suggesting that investor confidence isn’t limited to just a handful of mega-cap technology names.
International markets continued their strong run, as the MSCI EAFE gained 5.2% and the MSCI Emerging Markets gained 8.9%.
From a sector perspective, value-oriented were the standout, as energy, materials, consumer staples, and industrials all rallied strongly, while growth-oriented sectors like technology remained essentially flat for the month.
Interest Rates and Bond Markets
The Federal Reserve held its first meeting of 2026 in late January, and as widely expected, policymakers voted to keep interest rates unchanged. The federal funds rate remained in a range of 3.5% to 3.75%, marking a pause after three consecutive quarter-point cuts in the final months of 2025. Fed independence remained in the spotlight, as a DOJ investigation was opened on Chairman Powell around excessive spending on the Fed’s headquarters, fueling speculation that this was retribution for not caving to the administration’s calls for lower rates. President Trump ended the speculation of Chair Powell’s successor, as he named Kevin Warsh as the next head of the central bank.
Fixed income markets had a mixed January after delivering strong returns in 2025. The Bloomberg U.S. Aggregate Bond Index was roughly flat for the month, gaining 0.1%.
Longer-term Treasury yields actually rose slightly during the month, with the 10-year Treasury yield ending around 4.26%, up 9 bps from where it started the year. This happened even as the Fed held rates steady, reflecting investor concerns about the government’s fiscal outlook and the possibility that economic growth remains more resilient than expected.
The corporate bond market continued to attract investor interest, with companies issuing record amounts of new debt in January. The Bloomberg US Corporate Index gained 0.1% while the Bloomberg US Corporate High Yield Index gained 0.5%. Credit spreads on corporate debt remain near historic lows for both investment grade and high yield bonds.
Municipal bonds had a strong month, as robust demand pushed more than $7 billion into municipal bond funds. The Bloomberg Municipal Bond Index returned 0.9%.
Economic Data
The labor market continued to soften, as the U.S. economy added only 50,000 jobs in December, while November and October readings were both revised down. Initial jobless claims continued to increase, and job openings fell to their lowest level since September 2020. The unemployment rate fell 0.1% to 4.4%.
Inflation remained above the Fed’s target in December, with the Consumer Price Index coming in at 2.7% year-over-year, unchanged from November. Price increases for household staples remain a sticking point.
Corporate earnings season got underway in January, and early results have been generally positive. Blended earnings growth rate for Q4 is 11.9%, which if it holds, would be the fifth consecutive quarter of double digit earnings growth. Profit margins remain strong, with the S&P 500 on track to report net margins of 13.2%, which would be the highest level on record. Revenue growth is running at 8.2% year-over-year, and companies are providing reasonably constructive guidance for the quarters ahead.
Brendan Moleski, CFA
Head of Trading & Analytics