A Quick Programming Note
Starting in 2026, we’ve adjusted the format of our newsletter to deliver more focused, relevant content. Each month, we’ll begin with a market and investment-related commentary, followed by separate articles and blog posts during the month focused on financial planning, taxes, estate planning, and other topics relevant to your overall financial picture.
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January 2026 in Review
January returns were broadly positive across major asset classes, although leadership continued to shift beneath the surface.
Commodities delivered the strongest performance of the month, posting their best monthly gain in more than two and a half years (+10.5%, as measured by the iShares S&P GSCI Commodity-Indexed ETF). Gains were broad-based across energy, industrial metals, and precious metals, with metals stealing the spotlight. It could have been even better, but momentum reversed sharply at month-end, with gold (-12.6%) and silver (-31.9%) falling over the final two trading days.
International equities continue to outpace U.S. stocks, supported by a weaker U.S. dollar. Developed international stocks rose (+6.0%), while emerging markets gained (+5.0%), both well ahead of U.S. equities (+1.6%). Emerging markets also tend to be more closely linked to commodities, which provided further support as prices surged.
Within the U.S., small-cap stocks stood out, rising (+5.7%) and posting one of their strongest January performances in recent years. Large-cap equities advanced more modestly by comparison. Fixed income and cash had a slow but expected start to the year, with U.S. bonds (+0.2%) and cash (+0.3%) delivering returns driven primarily by income rather than price appreciation.
Market Narratives
Broadening Stock Returns
You don’t need complicated models to see what’s happening here: stock performance is broadening out.
International stocks, emerging markets, and U.S. small caps all outperformed U.S. large-cap stocks in January, continuing a shift that started to take shape late last year.
You can see the same thing on a sector basis within the S&P 500. According to Bespoke Investments, 7 of the 11 sectors beat the index during the month. Notably, Technology and Financials were both down, and the index still managed to finish higher. Leadership came from areas like Energy, Materials, Industrials, and Consumer-oriented sectors rather than the usual heavyweights.
That doesn’t mean volatility disappears. But it does tell us the market isn’t being carried by just a handful of stocks, which is typically a healthier setup than what we’ve seen at points over the last couple of years.
AI Beats SaaS
The natural follow-up question is why technology has been flat to negative in an otherwise positive market environment. What gives?
While AI enthusiasm has continued to support semiconductor stocks, the software side of the market has moved sharply in the opposite direction. The S&P 500’s Software & Services industry is now down more than 20% from its late-October high, officially entering bear market territory. Last Thursday alone, the group fell nearly 7%, driven in part by a 12% decline in Microsoft, making it one of the worst single-day drops for software stocks outside of periods like the Dot Com bust, the Financial Crisis, and COVID.
Across the iShares Expanded Tech Software ETF, the average stock is down nearly 40% from its 52-week high, with many large, well-known names (e.g., Adobe, Intuit, Salesforce, Oracle) down 30–50%.
At this point, the market is clearly questioning whether AI puts pressure on margins and pricing power for traditional SaaS models, leading to lower multiples even as demand for AI infrastructure remains strong.
The Fed Chair Nominee
The nomination of Kevin Warsh as the next Chair of the Federal Reserve initially pushed markets to revisit his history at the Fed, particularly his repeated warnings about inflation during his 2006–2011 tenure. At the time, Warsh consistently argued that inflation risks were being underestimated, even as unemployment was rising and the economy remained weak. That record helps explain the initial market reaction, including a stronger dollar and a sharp selloff in precious metals (though it’s hard to pin the move in metals to him alone).
Despite Warsh’s past inflation concerns, rate markets are now pricing more, not fewer, cuts later this year, and Warsh himself has recently argued for lower interest rates.
That suggests investors see him as more pragmatic than ideological, willing to respond to current conditions rather than replay old debates. More critical pundits have referred to him as a “political animal,” which may be a bit harsh, but he has been vocal about the institution and its policies in the years since being first passed over for the role in 2017.
His reputation may lean hawkish, but expectations point toward continuity rather than a sharp policy turn. For investors, the bigger takeaway is less about a sudden shift in direction and more about reduced uncertainty.
Closing Thoughts
Seasonality should always be taken with a grain of salt, but it can still be fun and informative. Historically, January has been the most predictive month, often summarized as “As goes January, so goes the year.” Per the Stock Trader’s Almanac, when the S&P 500 finishes higher in January, the next 11 months were positive 87% of the time, with an average gain of 12.2%. When January is negative, that success rate falls to 60%, with an average gain closer to 2%. Same market, different odds.
That pattern has shown up recently. A negative January in 2022 was followed by a bear market, while the past three years all saw positive Januarys and positive full calendar-year returns.
We are not investing based on the calendar. But positive Januarys tend to coincide with healthier market conditions. Think of it as context.
What made this January encouraging was not just the direction of returns, but where they came from. Performance showed up across regions, market caps, and asset classes rather than being concentrated in a narrow slice of the market.
As we look ahead, we remain constructive, but realistic. We will take the clues, stay balanced, and let the math do the rest.
Thank you for reading.
