Market Recap: January 2026

Market commentary

• Economic growth remains solid, driven by productivity gains — especially from AI and technology — that lift output without raising inflationary pressure or employment.
• Inflation remains elevated but manageable, with tariff-related pressures offsetting slower progress toward the Fed’s 2% core target.
• The U.S. labor market is mixed, with weak job growth, cooling wages, and rising long-term unemployment despite a stabilizing headline jobless rate.
• The 2026 outlook is cautiously constructive, favoring continued growth over recession as productivity improves, inflation eases, and rate-sensitive sectors stabilize.

Select economic and market data

Equities

• Markets opened 2026 higher but choppy, with new highs, broader participation, rotation out of mega-cap tech, and volatility driven by the Fed, earnings, and geopolitics.
• Non-U.S. equities delivered material outperformance versus U.S. markets, extending the diversification trend underway since mid-2025.

Fixed income

• The Fed appears to be in a holding pattern, with policy near neutral (3.5%–3.75%) and reduced urgency to cut until inflation and labor data become clearer.
• Stable Treasury yields and tighter credit spreads led corporates and mortgages to modestly outperform in January.

Strategic outlook

• Some caution warranted on equities in the near-term, particularly in large-cap stocks with above-average valuations; currently favoring small-cap and mid-cap domestic stocks longer-term.
• Near-average expected returns projected for fixed income with the Fed on pause and rates reflective of economic conditions.
• Above-average volatility is likely given central bank involvement and geopolitical uncertainty.