The first month of the new year was positive for US equities, but the sailing was not entirely smooth. There were several periods of heightened volatility, one of which saw a simultaneous selloff in Japanese government bonds and a re-escalation of tariff threats from the United States. This volatility contributed to the biggest daily decline in the S&P500 since October of last year and the VIX popping briefly above 20. Toward the end of the month and amid less than stellar earnings reports from Big Tech, refreshed inflation fears and the nomination of Kevin Warsh as the new Federal Reserve Chair introduced another round of volatility to the mix. Still, the market took this all in stride and resumed its upward trajectory, with the flagship index gaining 1.45% in January.
January’s performance was impressive in that it was diverse and broad-based: the rally expanded beyond large-caps to include cyclical and value-oriented sectors. Small- and mid-capitalization stocks also delivered robust gains, and equally weighted indices mostly outperformed their market cap-weighted counterparts. This underscores a relatively recent trend of rotation away from the growth trade and toward economically sensitive, value-oriented segments of the market. In fact, during the end of 2025 and shortly into the new year, value stocks have outperformed growth stocks by over 5%, with growth posting a slightly negative return over that time frame. This is notable as the rally continues to broaden out and participation now includes many areas of the market which have been left for dead in the wake of growth and tech leadership. Undoubtedly this is a positive development, reflecting investor confidence in the durability of economic activity and overall corporate health.
Economic data during the month were mixed but mostly positive. Inflation pressure continues to be contained, at least temporarily, and December’s Consumer Price Index reading was in line with expectations. While we have not seen a dramatic reduction in aggregate prices, it does appear that inflation is cooling down on the margin, allaying fears that 2025’s tariffs and One Big Beautiful Bill Act (OBBBA) would result in a rapid increase in prices. Similarly, consumer activity data were also encouraging as spending remains durable. Additionally, households are likely to receive additional support tied to the OBBBA, which is estimated to result in additional tax refunds in the $750-$1K range, providing a temporary but meaningful boost to the critically important American consumer. These positive developments were tempered somewhat by continued softness in the labor market, with underperforming jobs growth in recent months, but overall the January data were encouraging and reflect a resilient economy showing no signs of rolling over anytime soon.
Fixed income returns were mildly positive to begin the year, as interest rates remained contained in sideways, rangebound trading. Although yields ticked up marginally across the Treasury curve, most bond indices were able to eek out a positive return as investors seized on the more positive aspects of financial stability and the prospect of lower future interest rates. This conclusion came despite the Federal Reserve holding interest rates steady in its January meeting after cutting three consecutive times in the back half of 2025. Despite the lackluster recent job growth, the central bank views the employment situation as stable and inflation as contained. Accordingly, it has room to further reduce key interest rates in the coming months, an outcome that would be celebrated by both market participants and the current administration alike.
In keeping with the Federal Reserve, a major development occurred in January in which President Trump announced Kevin Warsh to be the next Chairman of the Board of Governors. He is slated to begin his term in May, pending Senate nomination. Warsh is both experienced and credible, despite his reputation as an inflation hawk. While it remains to be seen exactly how his tenure as Chairman will play out – and how his leadership style will differ from Jerome Powell’s – it is unlikely that the Fed’s mandate and overall attitude towards policy will change drastically. What is relatively clear is that the Fed has transitioned from an accommodative policy stance to one of neutrality. While the market does predict between 2-3 interest rate cuts in 2026, whether that plays out will be “data dependent,” to use one of Chair Powell’s favorite phrases. In any case, the Powell era is coming to a close in a matter of just a few months, and it is unlikely that Warsh will take any action to rock the boat as he takes the reins.
Moving forward, we note that February tends to be a seasonally weak period for stocks. And given the run-up that we have seen in equity markets, we would not be surprised to see a period of consolidation while the market pauses to catch its breath. Volatility always has a say. Nonetheless, the overall backdrop remains supportive and fundamentals remain intact. As always, we will keep the long view in mind, staying ready and equipped to react to changes in markets as they occur.
We hope that 2026 is off to a great start for you and yours. We genuinely thank you for your ongoing trust and support.
Sincerely,
Jason D. Edinger, CFA
Chief Investment Officer
Altara Wealth
This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.