Market Update – January Returns (including dividends)

S&P 500: +1.5%  

S&P 500 Equal-Weight: +3.4%  

Dow Jones:  +1.8%  

Nasdaq: +0.9% 

MSCI EAFE:  +5.2%  

MSCI Emerging Markets: +8.9%  

Bonds (US Aggregate):  +0.1%  

 Economic & Policy Highlights  

Interest Rates & Fed Outlook  

• The US Federal Reserve kept rates steady at 3.5-3.75% 
• 2 members of the Federal Reserve dissented, voting for a 25-basis point cut 
• President Trump picked Kevin Warsh as the new Fed Chairman 
• The Bank of Canada kept rates at 2.25% 
• Bank of Japan kept rates at 0.75%, but raised its inflation forecast  

Trade & Tariffs  

• China began their own trade spat with Japan over Japan’s support for Taiwan.  Cutting off rare earth’s supplies 
• Canada and China reached a trade truce 
• India and the EU sign a free trade deal after 2 decades of negotiations

Employment & Growth   

• The US FED saw a stabilization in the jobless rate and an improved growth outlook 
• Chinese services activities were the weakest in 6 months 
• Atlanta FED forecasts Q4 GDP to be 5.3% 
• The US government announced a $500 Billion increase in military spending 
• The White House delayed plans to garnish wages for delinquent student loans  

Consumer spending & sentiment  

• Zillow forecasted another slow year in housing 
• The White House banned institutional investors from buying single family homes 
• Saks filed for Chapter 11 bankruptcy 
• The US savings rate hit 3.5%, lowest since October 2022 

Geopolitical Volatility & Energy  

• US military conducted a secret operation in Venezuela, capturing President Maduro 
• Iran killed protestors and shut down the internet as protests raged over rampant inflation  
• The US ordered naval assets towards Iran 
• Oil rose 13.6% as geopolitical tensions rose globally   
• Gold rose 13.3% driven by heightened speculative buying and central bank purchases 
• Japanese PM Takaichi called an early election 
• President Trump threatened European countries with further tariffs in his bid to get a deal on Greenland 
• Natural gas prices rose 75% in three days as a massive cold snap hit the US 

Summary Impact  

• Sector rotation continued as investor moved away from technology and hunted for better valuations 
• Concerns over Japan’s fiscal situation cause a global rout in bonds, sending yields higher and stocks lower, temporarily 
• Stock market excitement over AI morphed into fear, as forecasted AI spending climbed 
• Geopolitical concerns became front and center for investors  

Commentary:  

Stock started January in the black with sector rotation accelerating and breadth improving.  These market moves were something we highlighted in the fall, as a potential outcome, as technology stock concentration approached its zenith. International stocks led the pack as investors “discovered” they were cheaper than US equities, something that has been a fact for over a decade.  US dollar weakness also acted as a tailwind for international stocks.  While it is encouraging to see other markets participating, we sense that investors may becoming both overconfident in further US dollar weakness, and overweighting emerging markets, which is becoming consensus.  Emerging markets typically trade at a discount to developed markets as they have proven time and again to be riskier on a number of levels.  As capital pours into these markets, investors seem to be minimizing this fact. 

Fixed income markets faced headwinds from rising rates globally that triggered a spectacular one-day blowout, as Japanese bond yields spiked with global bonds joining the contagion.  Thankfully things settled down quickly, but bond markets were once again later surprised by the nomination of Kevin Warsh as the new Fed Chair. 

January proved to be a volatile month that was punctuated by the rapid rise in oil prices (up 13.6%), due to geopolitical events. In addition, speculative excesses manifested in the precious metals space as both gold and silver prices went parabolic hitting new highs and then selling off a day later.  Retail ETF flows and Chinese speculators were blamed for the meteoric rise and subsequent fall.  Despite the volatility, gold finished up 13.3% for the month and silver rose 18.9%.  It was only last month that we warned about increased volatility that was anticipated to affect the 2026 investor landscape.  We remind clients that the second year of the Presidential Cycle has traditionally experienced greater volatility and the potential for larger market corrections.   

We will remain disciplined by sticking with our current tactical asset allocation until the markets provide us with a lower risk entry point.  In the meantime, we will opportunistically trim positions and take profits in stocks that have appreciated above our expectations.