Monthly markets review - January 2026
A look back at markets in January when emerging market shares and commodities performed strongly.
Authors
The month in summary:
Global shares gained in January with emerging markets outperforming developed markets, helped by dollar weakness. It was a month of heightened geopolitical risks and gold saw strong performance despite a sharp sell-off at month-end. In bond markets, US yields ended January higher, with the move concentrated in shorter maturities (yields move inversely to prices).
Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions, and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.
Global equities
Emerging market (EM) shares had a strong January, with the MSCI EM index significantly outperforming the developed market MSCI World index. In terms of equity style, global value outperformed growth while smaller companies also performed well.
US
US equities, as measured by the S&P 500 Index, finished January 2026 with a gain of 1.5%, as the market experienced a strong rally late in the month. During intraday trading on 28 January 2026, the index surpassed 7,000 points for the first time ever — a milestone reached just 14 months after the index first crossed the 6,000 mark. That record-setting move was driven by continued enthusiasm about artificial intelligence, strong earnings reports from major technology companies, and expectations that the Federal Reserve (Fed) may continue to ease monetary policy. At its January meeting, the Fed decided to leave its benchmark rate unchanged, but markets continued to price in expectations of cuts later in the year.
On the less positive side, US stocks’ gains remained narrowly concentrated. Volatility spiked at points during the month, including a sharp one-day sell-off prompted by renewed tariff threats from the Trump Administration. Investor concerns about the Fed’s future independence also weighed on sentiment, along with some signs of slowing economic activity, including a softening in consumer spending and early signs of deterioration in manufacturing output.
At the end of the month, the Trump Administration selected former Fed Governor Kevin Warsh to succeed Jerome Powell as Chair of the Fed. The appointment requires Senate confirmation, and market reaction in February will likely indicate whether investors view the nomination as supportive of further monetary easing or a source of renewed concern regarding the Fed’s ability to maintain its independence and resist political pressures.
Financials were the top performing sector, gaining significantly on expectations that lower interest rates could support loan growth. Industrials, consumer discretionary and materials also made gains, supported by signs of moderate economic resilience and corporate earnings. Despite strong earnings from mega-cap names, the technology sector overall was down slightly for the month amid worries about elevated valuations and the potential impact of tariffs on supply chains. Utilities, healthcare and consumer staples all experienced declines, as investors, in response to the expectations of lower rates, shifted towards higher-yielding or growth-sensitive sectors.
Eurozone
Eurozone shares delivered positive performance in January. Top performing sectors included information technology, energy and utilities. The weakest sectors were consumer discretionary and real estate. Within information technology, semiconductor shares led the gains amid some well-received corporate earnings, but software underperformed.
January brought significant geopolitical turbulence including President Trump’s stated desire for the US to acquire Greenland. This saw eurozone shares came under some pressure mid-month amid threats over potential tariffs and military intervention. However, those threats eased after the US and NATO allies shifted towards discussions about Arctic security cooperation. Within the industrials sector, defence stocks were generally strong as European countries continue to ramp up defence spending.
Eurostat data showed that the eurozone economy grew by 0.3% in Q4 2025, ahead of the market consensus. The eurozone’s seasonally adjusted unemployment rate fell to a record low of 6.2% in December. Annual inflation in the eurozone was confirmed at 1.9% for December 2025, down from 2.1% in November.
UK
UK equities performed well in January, delivering a positive return. Performance was led by the basic materials sector, followed by utilities and telecommunications. Technology and consumer discretionary underperformed. The basic materials sector was supported by gains in metals prices. Prices of various metals, including gold and copper, rose sharply amid worries over geopolitical risks and potential inflation. US tariff threats over Greenland were also a concern for UK markets until President Trump eased his stance on Denmark’s sovereignty over the island.
The FTSE 100 index, representing the largest companies, slightly underperformed the FTSE 250 midcap index but both posted positive returns. In the FTSE 250 index, top performing sectors included health care, basic materials and energy.
Data from the office for National Statistics showed the UK economy grew by 0.3% in November. Meanwhile, rising tax revenues meant the UK borrowed a lower-than-expected £11.6 billion in December. UK inflation, as measured by the consumer price index (CPI) was 3.4% for the 12 months to December 2025.
Japan
Japanese equities extended gains in January, with TOPIX Total Return up 4.6% and the Nikkei 225 up 5.9% in yen terms. Ongoing optimism about generative-AI demand supported semiconductor equipment and optical-component/fibre companies. Domestically, interest rates rose across the curve, reflecting both firmer growth/inflation and mounting concerns over fiscal discipline. This supported financials.
Political developments added volatility. Globally, geopolitical headlines unsettled risk appetite. Domestically, uncertainty around the House of Representatives election, debate over fiscal measures (including possible consumption tax cuts), and yen weakness—alongside intervention risk—kept markets choppy.
Overall, sector leadership remained narrow, but improving growth signals and supportive policy expectations underpinned sentiment.
Emerging markets
Emerging market (EM) equities delivered strong gains in January with the MSCI EM index well ahead of the MSCI World, supported by a weaker US dollar, ongoing strength in AI-related technologies and the potential for rising earnings expectations. Notable news during the month included strength in precious metals with gold reaching a new high of $5,000 an ounce, as well as the nomination of Kevin Warsh to serve as Federal Reserve (Fed) Chair.
Korea was once again a standout performer, helped by policy support and strong returns from some memory-related stocks which announced strong Q4 earnings results. Some of the smaller markets, including Colombia, Peru, Egypt, Turkey and Hungary also posted double-digit returns in US dollar terms. Brazil outperformed against a backdrop of a weaker dollar, easing inflationary pressure and expectations of a start to monetary policy easing. Greece benefited from the MSCI’s announcement of a consultation on a proposal to upgrade the country to developed market status. Taiwan’s gains were supported by ongoing strength in AI.
The Saudi Arabia index market benefited from higher energy prices over the month. The regulator announced that from the start of February the requirement for investors to be Qualified Foreign Investors will be removed, resulting in improved access for investors. Mexico’s returns also came in ahead of the EM index. The South African market was just behind the broader index although its positive returns were driven primarily by the ongoing strength in precious metals prices. Poland, Malaysia and the UAE all lagged the index, as did China. India posted the biggest losses in US dollar terms. Ongoing concerns about US trade tariffs, continued high market valuations and strength in the oil price, contributed to weakness.
Asia ex Japan
Asia Pacific ex Japan equities extended their outperformance into early 2026, with the MSCI AC Asia ex Japan Index rising by 8.2% in US dollar terms in January. The region’s gains were driven in part by increased investor risk appetite and a continued rotation of assets away from the concentrated US market.
South Korea and Taiwan were the standout performers, as strong demand for advanced semiconductors, AI infrastructure and related hardware lifted foundries, memory producers and equipment suppliers. Parts of Southeast Asia benefited from improving domestic demand and tourism. Hong Kong also delivered a double-digit return for the month. China saw moderate gains, though its performance lagged the broader regional rally amid persistent uncertainty about policy support and growth prospects.
India’s and Indonesia’s stock markets fell in January 2026, mainly because of weak company profits and foreign investors retreating from both markets. Indonesia faced additional pressure from concerns about market governance, the resignations of key regulators and falling commodity prices.
At the sector level, the information technology sector accounted for most of the broad index’s gains, with IT benefiting from strong performance in semiconductors and hardware. Energy lagged, while consumer staples also experienced negative returns.
Exposure to the semiconductor cycle, domestic growth momentum, currency depreciation in commodity economies, and supportive policy conditions all fuelled greater return dispersion between the region’s tech-heavy exporters and countries with more domestically oriented or commodity-driven markets.
Global bonds
Bond markets remained relatively sanguine to increased geopolitical risks, although the US’s removal of Venezuela’s leader Nicolas Maduro and the threat of military intervention in Iran and Greenland all contributed to a sense of unease. The weakness was felt in the US dollar, which fell versus all other G10 currencies in January.
The performance of developed government bond markets was mixed. In the US, yields ended the month higher, with the move concentrated in shorter maturities. The Federal Open Market Committee voted to keep its federal funds rate at 3.5-3.75%, with Federal Reserve (Fed) Chair Jerome Powell noting an improvement in the balance of risks to its dual mandate. The weakness in the labour market – which contributed to a lowering of interest rates in December – appears to be stemming from subdued hiring rather than widespread layoffs, therefore suggesting an underlying resilience.
On 30 January, Kevin Warsh was nominated by President Trump to replace Powell as the next Fed Chair. Relative to other candidates reported to have been under consideration, Warsh is perceived as one of the more market friendly choices. While he’s been supportive of lower rates, he’s also been a proponent of the Fed’s balance sheet reduction.
Eurozone rates outperformed the US. Economic activity remained resilient despite geopolitical risks. President Trump’s threat of 25% tariffs on European allies in the pursuit of Greenland was later rescinded but nevertheless injected a further degree of uncertainty into the region’s outlook.
French government bond markets outperformed with spreads over Germany tightening to levels last seen in mid-2024 (before President Macron’s announcement of a snap election). French premier Sebastien Lecornu will invoke Article 49.3 to force through the 2026 Budget, effectively bypassing a parliamentary vote. Despite the still-elevated 5% budget deficit, investors welcomed the semblance of political stability.
In the UK, yields in shorter maturities fell but rose at the long end of the gilt yield curve. There was more evidence of labour market weakness, with unemployment trending higher accompanied by softer pay growth. However, the purchasing manager indices were stronger than expected across both services and manufacturing.
Japanese government bond yields rose sharply across the curve. Prime Minister Sanae Takaichi called a snap election for 8 February to seek a mandate for an ambitious reflationary policy agenda, which include fiscal stimulus measures such as consumption tax cuts. Meanwhile, the Bank of Japan decided to keep its policy settings unchanged, with one hawkish dissent.
Despite geopolitical driven uncertainty, credit performed well as economic data generally remained upbeat. US dollar, euro and sterling denominated investment grade (IG) credit all generated positive total and excess returns. By the end of the month, euro IG spreads were trading slightly below that of the US.
US agency mortgage-backed securities (MBS) performed particularly strongly following government proposals for government sponsored enterprises [Fannie Mae, Freddie Mac.] to use up to $200 billion of retained portfolio to buy MBS from the open market, in an attempt to improve housing affordability.
Commodities
Commodities experienced a strong month with the S&P GSCI index returning 9.8% (in US dollars). Geopolitical events - including the ousting of Venezuelan president Nicolas Maduro and tensions between the US and Iran - contributed to investors favouring commodities. Energy was the strongest component in January with natural gas prices advancing amid cold weather in the US.
Precious metals were also strong, despite a reversal at month-end. Several factors, including geopolitical risks and worries over inflation and debt, led to some investors favouring gold and silver. However, the final trading day of the month saw President Trump nominate Kevin Warsh to be the next Federal Reserve chair. This allayed fears around a potential pick-up in US inflation and was followed by a sell-off in precious metals.
Other components lagged the index’s return. Agriculture posted a negative return for the month with cocoa prices particularly weak.
Digital assets
January was a challenging month for digital asset markets, characterised by elevated volatility, and a meaningful pullback from late-2025 highs. Bitcoin opened the year with renewed momentum. However, the rally proved short-lived as selling pressure intensified in the latter half of the month. Profit-taking from long-term holders collided with slowing new demand, thin liquidity amplified moves, and broader risk-off dynamics.
The month closed with Bitcoin down approximately -10%. The price impact on Ethereum was more drastic at -17%. Altcoins displayed broad dispersion, with certain privacy-focused and infrastructure tokens holding relatively firm, while many mid- and small-caps saw amplified declines.
Regulatory developments remained a bright spot. The Senate Agriculture Committee advanced the Digital Commodity Intermediaries Act in late January, building directly on the House-passed CLARITY Act framework by refining the Commodity Futures Trading Commission’s spot market authority and providing clearer legal definitions for digital commodities.
Authors
Thèmes