January Market Commentary
The Financial Landscape Undergoing A Meaningful Transition
By: Edward Miller, CFA, CMT
Chief Investment Officer
As we turn the page to 2026, it appears the financial landscape is undergoing a meaningful transition. Although fixed-income markets were relatively uneventful in January, with most bond segments posting near flat to slightly positive returns, equity markets enjoyed another month of robust performance. The S&P 500 Index rose 1.5% in January, but the Russell Midcap Index did even better with a 3.1% return, and small-caps bested both of those returns as the Russell 2000 Index soared by5.4% last month. Non-US stocks continue to excel with the MSCI All-Country World Index ex-USA rising by 6% and the MSCI Emerging Markets Index gaining nearly 9% in January.
Where we’re seeing noteworthy transition in the markets is with respect to breadth and sector rotation. After several years of narrow market leadership, January offered hopes that participation could be broadening beyond just a handful of mega-capstocks. Rather than the ¹“Magnificent 7” topping the list of outperformers, last month saw the average stock begin to make itself known as the equal-weighted S&P 500 returned 3.4%, or more than twice the gain for the cap-weighted S&P 500. It’s worth mentioning the “Magnificent 7” stocks as a group returned just 0.3% in January.
As for sector performance last month, the best return of 14.2% came from Energy, a sector which has trailed most other sector returns for the past two years. Interestingly, the two worst performing sectors last month were the two largest sectors within the S&P 500: Technology and Financials. These two sectors comprise nearly50% of the weight in the Index. Over the past 200+ trading days, Technology has been primarily the sole standout outperformer. But since November 1stthrough the end of January, Technology has been the worst performer of the 11sector groups, returning -4.2% in that time period compared to +1.8% for the S&P 500. Again, it appears investors are busy making some significant shifts in their allocations and risk exposure preferences.
One catalyst certainly driving the transition in markets has been the ever-evolving perception of AI. Investors are increasingly worried that the many billions in dollars being spent on AI may not translate into the payoffs once promised. Pressure is mounting for companies to show material benefits resulting from AI adoption, i.e. less hype, more tangible proof of concept. Whether AI has helped to increase bookings, improve retention, boost pricing power, or raise margins, are just a few examples of questions being asked by investors expecting concrete answers. Otherwise, if such queries remain ambiguous, the “AI premium” in most tech stocks will likely continue to shrink, as rising skepticism works to compress relative valuations and stock prices.
With January in the books, we thought it might be fruitful to review some of the many January-centric market indicators. In general, empirical studies have shown that as goes January, so goes the market for the rest of the year. Like anything else, this axiom is not perfect, but more often than random, it has proven to be a fairly reliable predictor.
The exhibit above dates back to 1950 and it shows only those years when the S&P 500gained between 0% to 2% in January. For those 13 years, the Index finished the year with a 12.0% return on average, much higher than the respective 8.2% gain for all years since 1950.
The next exhibit also dates back to 1950 and it shows years when both the first five days of January returned greater than 1% and the entire month of January had a positive return.
When both conditions were met, totaling 25 years, the average full year return for the S&P 500 was an impressive 18.4%, with only two of the 25 years finishing flat or negative.
Admittedly, these stats are impressive and, based on last month’s performance, bode well for the rest of the year. However, we would caution that a great deal of volatility could occur between now and the end of this year. In fact, recent bear markets are becoming faster and more intense. Historically, the average or typical bear market tends to last 6-12 months, but the last few market corrections have deviated sharply from this norm, lasting just a few months or even weeks. That said, equities could conceivably decline by a significant amount in 2026 and yet still ultimately finish higher for the year. We shall see!
If you have any questions, please feel free to call or email.
The entire team at Measured Wealth wishes to thank you for entrusting us to deliver on your financial goals.
Edward Miller, CFA, CMT
Chief Investment Officer
MeasuredWealth Private Client Group
Important Disclosures
¹’Magnificent 7’ is a market term and is being used for illustrative purposes only. The individual
securities and related returns shown are presented solely for illustrative and informational
purposes to demonstrate recent market trends. They are not intended to represent holdings in any Measured Wealth portfolio, nor do they represent investment recommendations or past or current performance of any MeasuredWealth strategy. Measured Wealth may or may not hold any of the securities discussed.
Historical data is not a guarantee that any of the events described will occur or that any strategy will be successful. Past performance is not indicative of future results.
Returns citied above are from various sources including Factset, Bloomberg, Russell Associates, S&P Dow Jones, MSCI Inc., The St. Louis Federal Reserve and Y-Charts, Inc. The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Investing involves risks, including possible loss of principal. Please consider the investment objectives, risks, charges, and expenses of any security carefully before investing.
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