For the period covering January 1, 2026, through January 31, 2026.

Global Perspective

Markets Kick Off the Year with Cautious Optimism

The first month of 2026 saw no shortage of commotion. But even as the geopolitical backdrop created noise—with talks of taking Greenland by force, capturing the President of Venezuela, and doubling down on ICE as heated debate spread across the country—markets stayed strong, building on the momentum of 2025. Any dip was temporary, followed almost immediately by a rally.

Last year delivered gains across equities, fixed income, and many risk assets, driven less by speculation and more by improving fundamentals—and January was no different. Global markets continued to lean into a familiar set of supports: Steady growth, cooling (albeit moderate) inflation, and a Federal Reserve that lowered interest rates—the combination of which gave investors reason to stay constructive. 

International Markets Push Past Currency Tailwinds

International markets once again outperformed the U.S., helped by a weaker dollar and early signs that growth abroad is stabilizing rather than slipping into recession. What started last year as a currency-driven trade—meaning a weaker U.S. dollar boosted returns on foreign investments for U.S.-based investors—is now showing hints of fundamental follow-through, with steady employment numbers, strong growth, and robust consumer demand from cooling inflation—all of which remain supportive. Particularly in parts of Europe and Asia, we’re beginning to see signs of improving economic momentum rather than just currency tailwinds‑‑through.

The Fed Pumps the Brakes

Headlines peaked near month end, as the Federal Reserve announced that it would hold interest rates steady—signaling it’s in no rush to cut rates further after easing monetary policy three times in 2025. At the same time, the Fed confirmed it’s preparing for a leadership transition later this year, as Chairman Jerome Powell’s term winds down—with President Trump nominating former Fed Governor Kevin Walsh as his successor. Leadership changes don’t automatically mean policy changes, but they do add an element of uncertainty—something markets tend to dislike at the onset. 

Shutdown Risk Returns to Washington

The month closed with a familiar affair in Washington: The risk of another U.S. government shutdown, driven by stalled negotiations and disputes over immigration enforcement and ICE funding. History has shown that shutdowns rarely derail the economy (just look to last fall), but they can inject short-term volatility into markets—especially when investor confidence is already fragile from policy-related uncertainty.

Equities Overview

Earnings, Not Enthusiasm, Do the Heavy Lifting

Equity markets ushered in a tailwind of strong earnings growth at the start of 2026. Analysts expect it to continue, with low-to-mid-teens growth forecasted for the S&P 500 this year, marking the third straight year of potential double-digit growth—a rare feat outside of economic recoveries. That matters, too—because, over time, stock prices tend to follow earnings, not headlines.

AI Shifts from Infrastructure to Productivity

It’s impossible to talk about equities without talking about AI—which remains the defining theme in markets. But the focus is shifting. Early on, markets rewarded companies that were building AI infrastructure: data centers, chips, power grids. Now, attention is shifting toward companies that are using AI to work faster, cheaper, and more efficiently. That matters because productivity—how much output the economy gets from each hour of work—is one of the most powerful drivers of profits over time. And we’ve already seen AI adoption improving productivity across industries like finance, technology, and professional services. In simple terms, companies are finding ways to do more with less manpower, which supports margins even when growth slows. 

Markets Move Beyond the “Magnificent 7”

We’ve seen encouraging developments in recent months, and January tracked on trend: Earnings growth is no longer coming from just a handful of mega cap technology companies. Nearly every sector of the broader market—the S&P 493 (i.e., minus the seven tech leaders)—is expected to contribute in 2026, suggesting a more durable and balanced expansion.

Valuations Are High But Tethered to Growth

There’s no denying that valuations are elevated across the board. But global markets are currently paying more for earnings power, not hype or excessive leverage. As long as profits continue to grow, equities will have a fundamental leg to stand on, even if volatility resurfaces. In other words, valuations look a lot less fragile when viewed through the lens of growth, rather than price alone.

Fixed Income Overview

Bonds Are “Boring” Again—and That’s a Good Thing

After years of frustration, fixed income continues to deliver something investors had largely forgotten about: income. With interest rates still well above pre-pandemic levels, bonds are once again doing their job and contributing meaningfully to portfolio returns—helping smooth portfolios during periods of equity volatility. 

The Fed Takes “Higher for Longer” Trajectory

The Fed’s decision to hold rates steady reinforces a key message: While rates may come down over time, dramatic cuts are unlikely unless the economy weakens materially. Instead, they’ll be limited and gradual, assuming they happen at all. That keeps short-term yields—the income bonds pay—attractive, while longer-term rates remain anchored by inflation expectations and large government deficits.

Patience Pays Off Amid a Steepening Yield Curve

When short-term rates fall faster than long-term rates, the yield curve steepens. In practical terms, that just means there are opportunities for investors to earn attractive income from bonds, without extending too far out in maturity timing—thereby reducing interest rate risk while still getting paid.

In other words, short-term rates are likely to drift lower over time as the Fed eases cautiously. And long-term rates are staying relatively high, reflecting inflation risk and large government deficits. This creates a yield curve that rewards patience and quality. Investors are being paid to own bonds again—especially high-quality Treasuries, municipal bonds, and select structured credit.

Quality Matters, Munis Maintain Their Appeal

Across fixed income, quality and selectivity matter more than ever right now, especially given the tight credit spreads—meaning buyers are willing to pay what sellers are asking. Municipal bonds, in particular, remain attractive on an after-tax basis, even with the strong demand keeping prices elevated. In a year where equity volatility could resurface, bonds are once again acting like a counterbalance, as opposed to dead weight.

Alternatives Overview

Gold Rises Above Inflation Alone

Despite some meaningful volatility, gold and silver still managed to end the month in positive territory. While often thought of as inflation hedges, precious metals also benefit from geopolitical uncertainty and concerns around long-term fiscal discipline—meaning gold’s role here is less about inflation hedging and more about trust. When confidence in policy stability is shaken, demand for hard assets tends to rise. In that sense, precious metals are not a trade—they’re an insurance policy within a diversified portfolio.

Uncorrelated Assets Create Stability

In recent years, stocks and bonds have often moved together—reducing the diversification benefits that they’ve historically offered. But income-oriented alternatives like private credit and real assets—investments that don’t move in lockstep with public markets—can help offset that by behaving differently during periods of market stress. These strategies aren’t about chasing returns. They’re about achieving consistent income with different risk drivers than traditional stock and bond investments. They don’t eliminate risk, but they can change where that risk comes from.

A Look Ahead

Fundamentals Should Stay in Focus

As we move deeper into 2026, the macro picture looks promising. Inflation is easing, labor markets are cooling but resilient, and earnings remain strong. AI-driven productivity gains are beginning to show up in real economic data, not just forecasts—pointing to proof beyond the promise. And while volatility is likely, focusing on the fundamentals still matters most.

Policy Risks Could Make Volatility Rise—Temporarily 

At the same time, policy risks are rising. Fed leadership changes, midterm-election year dynamics, and the threat of a recurring government shutdown suggest that volatility is likely to increase at times. That doesn’t mean fundamentals are deteriorating—it just means markets may react more sharply to headlines. 

Staying the Course Should Be the Strategy

History is clear on one point: Short-term volatility has never been a reliable reason to abandon long-term investment strategy. Volatility around political and policy events has consistently been short lived, while the cost of missing long-term market participation can be permanent. Discipline, diversification, and patience are the true power plays when markets feel uncomfortable. 

Advisory services offered through Wealth Enhancement Advisory Services, LLC, a registered investment advisor and affiliate of Wealth Enhancement Group®.

This information is not intended as a recommendation. The opinions are subject to change at any time and no forecasts can be guaranteed. Investment decisions should always be made based on an investor's specific circumstances. Investing involves risk, including possible loss of principal.

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