Market moves & themes that mattered: January 2026

Market overview

Global equities had a strong start to the year as leadership broadened further beyond U.S. mega-caps – extending December’s trend – with cyclical and value exposures outperforming once again in several regions. The MSCI World Index rose 2.3% in U.S. dollar terms, while the MSCI World ex US Index gained 4.7%, reflecting outsized strength across emerging markets and Asia Pacific coupled with a weaker U.S. dollar. Global government bonds delivered mixed returns for the month as yields on long-dated bonds rose, particularly in Japan, but with Germany a notable exception. Global corporate bonds had a strong month, delivering positive returns as spreads narrowed.

Oil prices rallied amid rising Middle East tensions, with WTI and Brent both snapping five-month losing streaks. WTI rose more than 13%, its best monthly performance since 2022. The U.S. Dollar Index fell 1.4%, at one point reaching a four-year low before a late-month rebound helped limit the downside. Gold and silver rallied, extending their 2025 gains, though both tumbled sharply at month end amid extreme volatility.

Key themes that mattered for markets

• Geopolitical tensions rose to the forefront: January saw a series of geopolitical flashpoints including U.S. military action in Venezuela, threats of potential strikes on Iran, and rising friction between the U.S. and NATO allies over Greenland. President Trump’s tariff threats toward Europe, Canada and South Korea further elevated policy uncertainty, though he softened some positions after announcing a “framework deal” with NATO. Equity markets remained broadly resilient, but the mix of geopolitical and trade risks added to a more unsettled global backdrop.
• U.S. dollar weakness and currency market whipsaw: The U.S. dollar fell to a four‑year low amid geopolitical tensions and fiscal policy uncertainty. The euro’s rapid rise prompted European Central Bank (ECB) officials to warn that further appreciation could necessitate rate cuts. The yen experienced extreme volatility amid intervention speculation and fiscal concerns in Japan. However, the month ended with the U.S. dollar’s strongest rally since May after President Trump’s nomination of Kevin Warsh as Federal Reserve (Fed) Chair.
• Commodities rally marked by extreme volatility: Gold climbed above $5,000 and was up nearly 30% for the month at one point, while silver surged more than 60% before both experienced their sharpest one‑day drops in decades on the final day of trading. Natural gas spiked on severe cold weather, copper reached record highs, and oil prices rose more than 10% on Middle East tensions, with WTI and Brent crude delivering their strongest monthly performance in four years.
• Sector rotation and broadening beyond mega-cap tech continued: Cyclical sectors extended their recent outperformance over traditionally defensive stocks. U.S. small‑caps, as represented by the Russell 2000, posted a 14‑day streak of outperformance versus the S&P 500, while value outpaced growth for a third straight month. International stocks led the way as emerging markets and ex-U.S. equities outperformed U.S. large caps, suggesting global leadership continued to broaden beyond the mega‑cap cohort.
• Divergence within the AI theme intensified: Markets drew sharp distinctions between AI winners and laggards in January. Meta and Microsoft earnings (released on the same day) underscored the bifurcation as META shares rallied sharply, and MSFT sold off. While both boosted CapEx forecasts, Meta’s stronger revenue guidance bolstered confidence in its AI monetization trajectory. Meanwhile, global chipmakers rallied on robust demand signals, while software stocks extended their recent slide amid mounting concerns about AI‑driven business‑model disruption.

United States

U.S. equities delivered monthly gains, albeit with significant sector divergence as weakness in big tech and financials partly offset strength elsewhere. Small caps notably outpaced large caps, while traditionally cyclical and commodity‑linked sectors were among the month’s strongest performers. Consumer staples also outperformed, helped by some well-received earnings results late in the month.

• The official cap-weighted S&P 500 gained 1.4%, while the equal-weight S&P 500 rose a much stronger 3.4%, reflecting the broadening leadership beyond mega-cap tech.
• The Nasdaq Composite rose 1.0%, ending a run of two straight monthly declines.
• The small-cap Russell 2000 rose 5.4% in January, which included a stretch of 14 consecutive days of beating the large-cap S&P 500.
• Value outperformed growth for a third straight month. The Russell 1000 Value Index gained 4.5%, while its growth counterpart fell 1.5%.

Fed independence concerns and Powell succession developments overshadowed steady economic data:

• Concerns about Fed independence heated up after the Justice Department launched a criminal investigation into Chair Powell related to federal building renovations. Global central bankers, including those at the ECB, Bank of England, and Bank of Canada, issued statements of solidarity with Powell and the Fed.
• After three rate cuts at the end of last year, the Fed held rates steady at the January Federal Open Market Committee meeting. The pause was widely expected, with markets continuing to price in roughly 50 basis points (bps) of easing this year.
• President Trump’s January 30 nomination of Kevin Warsh for Fed Chair sparked the U.S. dollar’s biggest rally since May and a sharp selloff in precious metals. Warsh, seen as less supportive of deep rate cuts and more hawkish on inflation, will face Senate confirmation in the coming months.
• Labor market readings showed signs of stabilization. U.S. nonfarm payrolls showed a 50,000 gain for December, while the unemployment rate ticked down to 4.4% from 4.5%.
• The Consumer Price Index (CPI) for December came in at 2.7% year over year, matching November’s pace.

Europe

Eurozone equities delivered solid gains and outperformed U.S. markets (despite some pockets of softness), reflecting steady macro data and well-received corporate results. The MSCI Europe ex UK Index rose 4.3% in U.S. dollar terms and 3.1% in euro. Germany’s DAX and France’s CAC were relative laggards, with the benchmarks both slightly lower in euro terms.

• Eurozone GDP growth held at 0.3% quarter on quarter in Q4 according to Eurostat’s flash estimate, exceeding expectations, with consumption and investment offsetting weaker exports.
• Inflation pressures eased, with Eurozone CPI falling to 1.9% in December, marking the first reading below the ECB’s 2% target since May.
• Business activity showed resilience, as the flash Eurozone Composite Purchasing Managers’ Index (PMI) held at 51.5 in January, matching the prior month’s reading.
• Germany posted incremental signs of stabilization. The economy grew 0.2% in 2025 after two years of recession, while Q4 growth of 0.2% exceeded forecasts. Industrial production rose unexpectedly in November, though exports fell.
• Political uncertainty persisted in France, where Prime Minister Lecornu survived two no‑confidence votes as the government’s 2026 budget saga extended into February.

UK equities delivered strong gains in January, supported by improving business activity and signs of firmer growth momentum. The MSCI United Kingdom Index and FTSE All‑Share Index each rose 5.0% in U.S. dollar terms and 3.1% in sterling.

• UK GDP showed a stronger‑than‑expected rebound, with November output rising 0.3% month on month, beating the 0.1% consensus and reversing October’s 0.1% contraction.
• Business activity strengthened as the January flash UK Composite PMI rose to 53.9, the highest level since April 2024, suggesting a solid expansion across both manufacturing and services.
• Inflation edged higher, with December CPI rising to 3.4% from 3.2% in November, though economists broadly viewed the uptick as temporary.
• While these factors solidified expectations for the Bank of England to hold rates steady in February, the market continues to price in one to two rate cuts later this year.

Across the STOXX 600 – comprising companies from 17 countries across developed Europe including the UK – most sub-industries posted monthly gains, with the strongest performance from commodity-linked sectors.

• Basic Resources (+12.7% in euro terms) led amid a continued rally in precious metals and copper, while Energy (+9.3) and Utilities (+8.0%) outperformed, driven by a surge in crude prices and strength in renewable energy names, respectively.
• Industrials (+6.1%) and Banks (+5.5%) continued their strong recent performance, while Technology (+5.3%) got a boost from strong semiconductor demand.
• Conversely, Consumer (-7.5%), Media (-5.4%), Insurance (-4.7%), Auto & Parts (-4.7%), and Travel & Leisure (-3.4%) all posted sizeable monthly declines amid a mix of earnings disappointments and margin pressure concerns.

Asia Pacific

Japanese equities posted strong gains in January, fueled in part by investor optimism ahead of the pending general election and buoyed by continued strength in semiconductors. Meanwhile, fiscal dynamics kept the yen and government bond yields volatile. The TOPIX gained 4.6% in yen terms and 5.9% in U.S. dollars, while the Nikkei 225 rose 5.9% in local terms and 7.2% in U.S. dollars.

• Prime Minister Takaichi dissolved parliament and called a snap election for February 8, prompting a rally in domestic equities and a rise in long‑dated Japanese government bond (JGB) yields.
• The Bank of Japan (BoJ) kept its policy rate unchanged at 0.75%, maintaining its highest policy setting in 30 years while signaling that additional rate hikes remained.

Asia Pacific ex Japan rallied in January, supported by a powerful rally in technology and semiconductor names. The MSCI AC Asia Pacific ex Japan Index rose 8.0% in U.S. dollar terms, with performance further lifted by currency strength in several markets. Strength was notable in Korea and Taiwan, up 28.1% and 11.2%, respectively, in U.S. dollar terms. Australia’s ASX 200 gained 6.4% in U.S. dollar terms but rose a more modest 1.8% in AUD. The Australian dollar strengthened against global currencies amid firmer economic data and increased expectations that the Reserve Bank of Australia (RBA) could hike rates as early as February. The China MSCI Index rose 4.7% in January, recovering from December’s decline. China Q4 GDP slowed to 4.5% year over year, the weakest pace in nearly three years, though exports remained resilient, with China posting a record $1.2 trillion annual trade surplus.

Emerging Markets

Emerging market equities rallied sharply in January, delivering their strongest monthly gain since 2022. The MSCI Emerging Markets Index rose 8.9% in U.S. dollar terms, supported by powerful semiconductor‑driven performance in Asia and stronger commodity prices across several Latin American markets.

• South Korea remained a standout, with the Kospi breaking above 5,000 and surpassing Germany’s equity market capitalization.
• Latin America posted broad gains, with Brazil rising 16.8% in U.S. dollar terms, while Colombia gained 27.3%. Across EMEA, standouts included South Africa and Turkey, up 8.3% and 23.7%, respectively.
• India faced mixed signals, as benign inflation created room for the RBI to consider a February rate cut, even as the rupee fell to a record low amid persistent investor outflows. The MSCI India Index fell 5.1% in U.S. dollar terms.

Fixed Income

Global government bonds delivered mixed returns in January as yields rose across the long end of the curve in most regions. The backdrop was volatile, driven by heightened geopolitical tensions and a sharp move in Japanese yields that reverberated through global markets. Spread sectors fared better amid largely positive risk sentiment and strong support for corporate issuance to start the year.

• The Bloomberg Global Treasury Index ended the month essentially unchanged in U.S. dollar terms.
• The U.S. Treasury curve steepened modestly, with longer-dated yields rising more than the shorted-dated maturities. The 10-year Treasury yield rose 8 bps to 4.26%, breaking above 4.2% for the first time since September and briefly topping 4.3% before retracing.

• In Europe, German government bonds outperformed. The 10-year bund yield edged down 1 bp in January after hitting a two-year high in December.
• In the UK, 10-year Gilt yields rose a modest 4 bps. Following its December rate cut, the Bank of England is widely expected to stand pat in February.
• Japanese government bonds came under pressure as long-dated yields continued higher. The 10-year JGB yield rose 18 bps to end the month at 2.25%. Fiscal concerns intensified after the government proposed a temporary suspension of the sales tax on food, pushing 40‑year JGB yields above 4% as investors reassessed long‑term issuance needs.

Spread sectors started the year on a strong note as option-adjusted spreads (OAS) narrowed across investment-grade and high-yield benchmarks, as well as for asset-backed and mortgage-backed securities (MBS). U.S. investment grade corporate spreads tightened toward multi‑decade lows. MBS were also in focus after the White House directed large‑scale MBS purchases totaling $200 billion.

• The Bloomberg Global Aggregate Corporate Index rose by 0.9% in U.S. dollar terms, while the Bloomberg Global High Yield Index gained 1.0%.
• Global investment-grade spreads narrowed by approximately 5 bps, while high-yield spreads narrowed by roughly 8 bps.
• U.S. investment grade corporate spreads tightened toward multi‑decade lows, narrowing by roughly 5 bps.
• In securitized markets, asset-backed securities (ABS) and MBS spreads narrowed by approximately 6 bps.

Central Bank Watch

January was a relatively quiet month for monetary policy, with major central banks largely in “wait‑and‑see” mode. Both the Federal Reserve and Bank of Japan left rates unchanged, as expected, while President Trump’s January 30 nomination of former Fed Governor Kevin Warsh as the next Fed Chair drew most of the market’s attention. The policy calendar gets busier in early February, starting with the Reserve Bank of Australia – where odds of a hike have increased – followed by decisions from the Bank of England and the ECB, with both expected to hold rates steady.

• Bank of Korea (Jan. 15): Kept base rate at 2.50% while signaling an end to its easing cycle, prioritizing FX stability as the won hovered near 16‑year lows. The BOK removed language about leaving room for further rate cuts, a notable shift from previous statements.
• People’s Bank of China (Jan. 20): Kept the one‑year and five‑year Loan Prime Rates unchanged at 3.00% and 3.50%, respectively. Despite soft economic data, policymakers continued to favor targeted liquidity measures over benchmark rate cuts, though economists see scope for easing later in 2026.
• Norges Bank – Norway (Jan. 22): Maintained policy rate at 4.00%, as expected. The Bank acknowledged ongoing uncertainty but signaled that rate cuts could come later in the year if economic conditions unfold as expected.
• Bank of Japan (Jan. 23): Left policy rate at 0.75% in an 8-1 vote, with one member favoring a hike. Policymakers upgraded their growth and inflation forecasts and signaled that further tightening remains on the table. The BoJ emphasized patience as it assesses the impact of December’s rate increase and awaits the outcome of the February 8 snap election.
• Bank of Canada (Jan. 28): Held policy rate at 2.25% for a second straight meeting, noting the outlook is highly vulnerable to unpredictable U.S. trade policies, particularly ahead of the Canada-U.S.-Mexico Agreement (CUSMA) review in July.
• Federal Reserve (Jan. 28): Held the target range at 3.50%-3.75%, as expected, after three consecutive rate cuts at the end of 2025. Officials signaled comfort adopting a patient stance with the labor market showing early signs of stabilization, reducing the urgency for further easing. Economists noted the shift suggests December’s rate cut was likely the last of Jerome Powell’s term as Fed Chair, which ends in May.
• Brazil (Jan. 28): Kept the Selic rate at 15.00%, marking a fifth consecutive hold as the Bank judged that a prolonged period of restrictive policy is still needed to guide inflation toward target.
• Riksbank – Sweden (Jan. 29): Left policy rate unchanged at 1.75% for a third straight meeting and signaled no change is likely for the rest of 2026.

Key events on tap in February

• Feb. 2 – Global Manufacturing PMIs (January)
• Feb. 3 – Reserve Bank of Australia (RBA) Rate Decision
• Feb. 4 – Global Services and Composite PMIs (January)
• Feb. 4 – Eurozone Consumer Price Index (January, preliminary)
• Feb. 5 – Bank of England (BoE) Rate Decision
• Feb. 5 – European Central Bank (ECB) Rate Decision
• Feb. 6 – U.S. Nonfarm Payrolls, Unemployment Rate (January)
• Feb. 8 – Japan general election
• Feb. 11 – U.S. Consumer Price Index (January)
• Feb. 15 – 23 – Lunar New Year (China and various Asian markets closed)
• Feb. 17 – UK Unemployment Rate (September to December)
• Feb. 18 – Australia Employment, Unemployment Rate (January)
• Feb. 18 – UK Consumer Price Index (January)
• Feb. 22 – People’s Bank of China (PBOC) Rate Decision
• Feb. 24 – Australia Consumer Price Index (January)
• Feb. 25 – Eurozone Consumer Price Index (January, final)

Market Performance

IMPORTANT INFORMATION

Equity securities are subject to risks including market risk. Returns will fluctuate in response to issuer, political and economic developments.

Fixed income securities are subject to interest rate, inflation, credit and default risk. As interest rates rise, bond prices usually fall, and vice versa. High-yield bonds, or “junk” bonds, involve a greater risk of default and price volatility. Foreign securities, including sovereign debt, are subject to currency fluctuations, political and economic uncertainty and increased volatility and lower liquidity, all of which are magnified in emerging markets.

Securitized products, such as mortgage- and asset-backed securities, are more sensitive to interest rate changes, have extension and prepayment risk, and are subject to more credit, valuation and liquidity risk than other fixed-income securities.