Below is a brief summary of the key developments across equities, fixed income, and the broader economic backdrop as we move further into 2026.
1. Equities: Global Markets Lead as U.S. Rally Cools
January brought a notable shift in market leadership. While the S&P 500 posted a modest gain of 1.37%, it was outperformed by international equities, with the MSCI ACWI rising 2.83%. Capital rotated away from the concentrated U.S. technology trade toward global markets, driven by attractive valuations abroad and a softening U.S. dollar. Emerging markets were particularly strong, surging 8.7% as investors sought exposure to the recalibration of global supply chains and stabilizing growth in Asia. Domestically, small-cap stocks staged a powerful breakout, with the Russell 2000 jumping 11.2%, defying the “AI fatigue” that dragged the Nasdaq Composite down 0.94% for the month.
2. Fixed Income: Yields Climb on Policy Signals
Bond markets faced headwinds in January as the 10-year Treasury yield rose to 4.26%, up from 4.18% at the start of the year. The move reflects a “bear steepening” of the yield curve, driven by the Federal Reserve’s decision to pause rate cuts and lingering concerns over fiscal deficits. With the 2-year Treasury yield settling near 3.52%, the curve is slowly normalizing. Despite the backup in yields, credit markets remained orderly. Investment-grade spreads held near historic lows, suggesting that while investors are adjusting their interest rate expectations, they remain confident in corporate fundamentals and the absence of imminent recession risk.
3. Fed Policy: A Contentious Pause
The Federal Reserve voted to hold interest rates steady at 3.50–3.75% at its January meeting, snapping a streak of three consecutive cuts. The decision revealed significant fractures within the committee, with Governors Stephan Miran and Christopher Waller dissenting in favor of a quarter-point cut to support the softening labor market. Chair Powell described the consensus as “broad” but acknowledged that data disruptions from the previous government shutdown had complicated their visibility. The “hawkish pause” signals that the Fed is shifting to a more cautious, meeting-by-meeting approach, unwilling to commit to a linear path of easing while inflation remains sticky near 2.7%.
4. Macro Indicators: Stagnant Hiring and Delayed Data
Economic clarity was elusive in January due to delayed government reports. The official Q4 GDP release was postponed to February, forcing investors to rely on tracking models which estimate growth remained robust at roughly 4.2%. However, labor market data signaled a slowdown: the U.S. economy added just 50,000 jobs in December, and the unemployment rate settled at 4.4%. Inflation remains stubborn, with headline CPI holding at 2.7% year-over-year. The divergence between solid growth estimates and cooling hiring suggests a productivity-driven expansion that is not yet generating broad-based employment gains.
5. Global and Fiscal Developments: Budget Delays and Rising Oil Demand
Fiscal discussions in Washington extended past the January 30 deadline, resulting in a temporary lapse in funding for specific government agencies. The Senate successfully passed a comprehensive funding package, and the House is scheduled to vote on the measure in early February to restore full operations. In the energy sector, market dynamics shifted following U.S. operations in Venezuela and the issuance of General License 46, which facilitates the export of Venezuelan crude. Despite this potential supply increase, oil prices rose approximately 14% in January. This rally was driven largely by an improved outlook for global economic activity, which boosted demand expectations, while markets simultaneously discounted the immediate impact of Venezuelan barrels hitting the global supply chain.
6. Bottom Line: Diversification
January highlighted a market environment in which leadership broadened across regions, sectors, and asset classes, underscoring the value of diversification after an extended period of narrow performance leadership. Widespread strength outside U.S. large-cap technology, alongside resilience in credit markets and shifting rate dynamics, reflected a more balanced set of return drivers. At the same time, elevated yields and evolving policy expectations created a wider range of outcomes across both risk and defensive assets. Together, these crosscurrents suggest a market that is becoming less dependent on any single theme and more influenced by varied economic and financial forces.
Disclosure
This material is provided by Gryphon Financial Partners, LLC (“Gryphon”) for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Facts presented have been obtained from sources believed to be reliable. Gryphon, however, cannot guarantee the accuracy or completeness of such information. Gryphon does not provide tax, accounting or legal advice, and nothing contained in these materials should be taken as tax, accounting or legal advice. Individuals should seek such advice based on their own particular circumstances from a qualified tax, accounting or legal advisor.