The Big Picture
January saw a continuation of the positive momentum that closed out 2025, though the ride was far from smooth. Markets began the year in a celebratory mood, but enthusiasm was periodically tempered by fresh geopolitical tensions and a highly anticipated Federal Reserve meeting. A major theme during the month was a rotation away from the heavy-hitting technology names that dominated gains over the past several years as market participation broadened out into non-tech and cyclical stocks.
What Moved Markets in January
Geopolitical developments added a layer of volatility leading to some dramatic market moves during the month. The Trump administration threatened 10% to 25% tariffs on eight NATO allies over their refusal to negotiate on the “sale or long-term lease” of Greenland, which sparked wider fears of an unraveling NATO alliance. The S&P had its steepest daily drop since the previous October, falling over 2% on January 20th. However, markets staged an abrupt and almost immediate turn-around the following day when a reversal on tariffs and military threats was announced after “very productive meetings” with NATO Secretary-General Mark Rutte at Davos.
Markets were also focused on the first Federal Reserve policy meeting of 2026, held the last week of January. As expected, the Fed elected to hold the short-term interest rate steady at the current 3.50%-3.75% target range. This pause came after three consecutive rate cuts in late 2025.
Performance Snapshot
Equities were up across the board in January. The S&P 500 began the year with a 1.5% gain and surpassed 7,000 for the first time. The Dow gained 1.8% and closed above 49,000 for the first time. The Nasdaq managed a 1.0% increase, but remains below the all-time high reached back in October. Small- and mid-cap stocks were the stand outs, with the S&P 400 Mid Cap up 4.1% and the Russell 2000 rising by 5.4%. International and emerging markets maintained their momentum from last year, adding an additional 5.2% (MSCI EAFE) and 8.9% (MSCI Emerging Markets).
Energy and Materials were the month’s top two sectors, rising 14.2% and 8.6%, respectively, benefitting from strong commodity prices. Consumer Staples also saw strong returns as investors leaned into defensive names as a hedge against potential economic cooling.
Health Care, Technology, and Financials were all flat-to-down to start the year. Within Technology, software providers faced significant headwinds as the market weighed the threat of AI-driven disruptions to legacy business models. Meanwhile, the Financial sector was pressured by political developments in Washington. Industry heavyweights Visa and Mastercard saw their shares retreat as the Credit Card Competition Act (CCCA) gained unexpected political momentum, introducing new regulatory uncertainty into the payment processing space.
In fixed income, the 2-year Treasury note ended the month at 3.52% while the 10-year finished at 4.26%, reflecting a steepening of the yield curve as the market priced in fewer near-term rate cuts and a higher-for-longer outlook. Fixed income indexes saw minimal overall impact with relatively flat returns across the board for the month. Over the past 12 months, fixed income has provided respectable mid-single-digit returns.
Final Thoughts
January was largely a continuation of a trend that began last fall. Namely, a market that is showing signs of transitioning from very narrow leadership to much broader participation. Since the end of October, the average stock in the S&P 500, as measured by the S&P Equal Weight index, mid-cap, and small-cap stocks are up 5.8 – 6.3% while the S&P 500 is up 1.75%.
The so-called “January Barometer” suggests that as goes January, so goes the year. Historical data largely supports this notion: when the stock market finishes January in the green, the probability of a positive full year is 89%. Conversely, when the month ends in the red, the odds of a positive annual return drop to 60%. However, no rule of thumb is a guarantee. As recently as 2018, the market got off to an exceptionally strong start in January, only to conclude the year with a dramatic sell-off that nearly resulted in a bear market.
Since we cannot fast-forward to December, it is helpful to remember that even in strong years, significant pullbacks are the norm rather than the exception. As shown in the chart below, the average intra-year drop for the S&P 500 over the last 46 years was -14.2%. Despite these temporary declines, annual returns remained positive in 35 of those 46 years.
Participating in the long-term compounding of the stock market requires enduring the inevitable turbulence along the way. Volatility is a feature of the system, not a bug, and history suggests that the only certain prediction we can make for the remainder of 2026 is that some bumps are likely.
As always, if you would like to review your portfolio, or if you are not currently a client and would like a fresh perspective on your situation, please reach out: Connect with Us | Pittenger & Anderson, Inc.
Clicking on the links above may result in you leaving the Pittenger & Anderson, Inc. website. The opinions and ideas expressed on these external websites are those of third-party vendors and Pittenger & Anderson, Inc. has not approved or endorsed any of this third-party content. For the full Terms & Conditions of using the Pittenger & Anderson, Inc. website, click on this link.
Pittenger & Anderson, Inc. makes no representation, and it should not be assumed, that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is also the possibility of loss.
Pittenger & Anderson, Inc. does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Additionally, the information presented here is not intended to be a recommendation to buy or sell any specific security. To learn more about our firm and investment approach, check out our Form ADV.
To view this article and others like it online, visit the P&A blog at https://pittand.com/blog/.
Click here to download the PDF version of this article.
