Executive Summary

January 2026 saw a rotation in global leadership as U.S. large caps trailed both international counterparts and small caps. Fixed income markets grappled with the impact of expansionary policy measures, such as the “One Big Beautiful Bill Act” and heightened Japanese fiscal spending, which pushed yields higher. While the U.S. macro environment held steady for much of the month, the January 30 nomination of Kevin Warsh as Fed Chair shifted market expectations. This announcement triggered a historic reversal in the gold rally and pushed Bitcoin below the key $80,000 dollar level as investors priced in a stronger dollar. These events shift the focus toward a new policy era, prompting the market to re-evaluate future central bank strategies.

Equity Markets Performance

Major Index Movements

U.S. large-cap equity indices posted modest gains in January 2026, as market leadership shifted toward international and small-cap segments. The S&P 500 rose 1.37% for the month, while the Dow Jones Industrial Average gained 1.73%. The Nasdaq Composite delivered the softest performance among the major indices, advancing 0.95%. In contrast, the Russell 2000 and international equities (VXUS) significantly outperformed, with monthly returns of 5.31% and 4.06%, respectively. January’s small-cap and international outperformance was initially fueled by global recovery hopes and rate cut expectations. However, the narrative broke on January 30th with the nomination of Kevin Warsh as Fed Chair. While international equities remain resilient on strong GDP growth and large fiscal commitments, U.S. small caps are facing a reversal. As a known monetary hawk, Warsh’s focus on shrinking the Fed’s balance sheet has spiked yields and strengthened the dollar, pressuring rate-sensitive small caps.

Sector Performance and Stock Movements

The Energy sector was the standout performer in the S&P 500 this month, with the Energy Select Sector SPDR (XLE) returning approximately 14.16%. This rally was fueled by a convergence of tailwinds, including geopolitical instability following the U.S. intervention in Venezuela, extreme winter weather across the United States, and a broader rotation toward high dividend yields and attractive valuations. Individual leaders within the sector saw significant gains, with ExxonMobil (XOM) and Chevron (CVX) returning roughly 15% and 10%, respectively.

Consumer Staples also demonstrated significant strength, as the XLP returned approximately %7.51, bolstered by a defensive “flight to safety” led by Philip Morris (+10%) and Walmart (+6.45)

In contrast, the Technology sector (XLK) returned 0.42%. While Meta (+8.55%) and NVIDIA remained resilient by demonstrating tangible ROI from AI, the broader “Magnificent Seven” showed signs of divergence; Microsoft’s -11.57% decline signaled a shift in investor sentiment toward selective profitability and a demand for realized returns over speculative AI growth.

Fixed Income Markets

In January 2026, fixed income was defined by sticky inflation and a hawkish shift following the nomination of the new Fed chair. These drivers pushed the 2-year yield up 2 basis points to 3.52%, the 10-year yield up 8 basis points to 4.26%, and the 30-year yield up 10 basis points to 4.87%. This movement occurred as the market priced in more aggressive quantitative tightening (QT) to reduce the Fed’s balance sheet, reflecting expectations for increased bond supply. This trend coincided with a 6-basis- point tightening in high-yield Option-Adjusted Spreads (OAS), driven by strong corporate earnings results.

Commodity Markets

Metals

In January 2026, gold and silver reached record highs due to a weaker dollar, fiscal concerns regarding U.S. debt, and sustained central bank purchasing. However, the rally was increasingly driven by intense speculation, leading to extreme volatility throughout the month. The narrative shifted abruptly on January 30, when the nomination of Kevin Warsh as Fed Chair triggered a “hawk shock” that revitalized the dollar, resulting in a massive sell-off in metals. Despite gold declining 16.7% from its January peak, it ended the month with a 10% gain. Similarly, silver fell 35% from its peak but still managed an 11% return for the month.

Energy

The energy sector saw high volatility in January 2026, with crude oil staging a recovery from 2025 lows. Brent crude climbed to approximately $70 per barrel, up from $63 in December. This rally was fueled by intensifying Middle East tensions, particularly civil unrest in Iran and U.S. threats of immediate 25% tariffs on the regime’s trading partners, which reintroduced a significant geopolitical risk premium over fears of a Strait of Hormuz blockade.

OPEC+ maintained its supply discipline, reaffirming a production pause through March 2026. While oil gained 12% for the month, the sector was further boosted by a historic 117% spike in U.S. natural gas (peaking at $6.80/MMBtu) after a winter storm knocked 12% of domestic production offline. Consequently, the XLE ETF gained 14.18% for the month, leading all major S&P 500 sectors.

Cryptocurrency Markets

Bitcoin trended toward $98,000 for much of January, supported by consistent institutional inflows. The market pivot on January 30 followed the nomination of a new Federal Reserve Chair, which strengthened the U.S. Dollar and challenged the month’s prevailing risk-on sentiment. This shift triggered a broad deleveraging event that pushed Bitcoin below the $80,000 level to close the month with BTC trading at $77,000.

International Markets

Developed Equity Market Performance

European equities demonstrated resilience in January 2026, with the Euro Stoxx 50 returning 1.8%. This gain was underpinned by a better-than-expected 0.3% expansion in Eurozone GDP and a rebound in heavyweight sectors like banking and technology. Despite late-month volatility triggered by U.S. policy shifts, the index maintained its upward trajectory, supported by attractive relative valuations compared to U.S. peers and steady corporate earnings from leaders like SAP and Adidas. Japanese equities had strong returns with the Nikkei 225 surging 5.93%, driven by a weak yen and record corporate performance signalling strong fundamentals.

Emerging Equity Market Performance

In Asia, the Taiwanese market was a definitive standout. The TAIEX reached a historic milestone in January, gaining over 3,100 points to hit an all-time high of 32,996 during the month. This exceptional performance was primarily driven by the “AI capex boom,” which fueled massive demand for Taiwan’s semiconductor leaders. TSMC and the memory sector saw significant capital inflows as foreign investors returned to the market in force, positioning Taiwan as one of the strongest-performing regions globally to start the year. China’s CSI 300 remained largely range-bound, finishing with a marginal – 0.24% return as a sluggish property sector offset a 6.39% surge in tech-heavy ETFs. While export resilience and AI optimism supported manufacturing, a lack of aggressive fiscal stimulus and a “two-speed” economy kept domestic consumption weak. India’s Nifty 50 fell 3.83% as markets faced heavy foreign investor outflows and a surprise tax hike on derivatives. Despite this, sentiment was bolstered by a massive $133 billion (₹12.2 lakh crore) capital expenditure plan and strong 7.4% GDP growth projections.