January 2026 Market Recap

Major global equity indexes ended January modestly higher despite significant volatility. Mid-month, tensions between the US and Europe related to Greenland sparked a brief equity sell-off.

Here’s a recap of what happened in the market and economy.

The markets: all-time highs for equities

As uncertainty subsided following the Davos summit, the S&P 500 and Nasdaq climbed to new all-time highs by month end, returning 1.5% and 1.2%, respectively. Outside the US, gains were even stronger, with the MSCI EAFE and MSCI EM rising 3.2% and 8.9%, respectively.

Government bond yields rose in the US. A more upbeat assessment of growth and the labor market at the January Fed meeting nudged the 10-year Treasury yield up by 7 basis points.

The DXY fell 1.4% in January, driven by US policy uncertainty. Looking ahead, despite elevated uncertainty, ISG continues to expect a broadly neutral dollar stance for 2026 as fundamentals—relative US growth and returns, favorable yield differentials, and continued global capital allocation toward US assets—remain supportive for the greenback. That said, risks remain elevated and volatility is likely to persist.

Finally, while commodities and precious metals posted broadly positive returns in January, they saw sharp declines at month end. The nomination of Kevin Warsh for Fed Chair and the subsequent USD recovery exacerbated a rapid unwind of leveraged positions in precious metals, driven by profit taking, forced liquidations, and margin pressures.

The economy: Fed leaves interest rates unchanged at January FOMC meeting

In the US, ISG has revised their GDP growth forecast up to 2.5% from 2.3% as consumption data remained solid in Q4 despite some labor market softness and tariff related price pressures. Strong balance sheets are helping households to smooth consumption. 

ISG expects real income to improve as the outlook for both the labor market and inflation brightens, supporting solid—though somewhat slower—consumption growth through 2026.

CPI has surprised to the downside, largely due to softer shelter inflation. However, PCE inflation has been stronger and is likely to continue firming in the near term as higher tariffs continue to feed through to prices.

Given this backdrop, the Fed left the policy rate unchanged at 3.50%–3.75% at their January meeting. Chair Jerome Powell’s remarks were modestly more upbeat on growth and the labor market compared with December.

This shift in communication suggests cuts are now more likely to take place after the new Fed chair, Kevin Warsh, is in place. 

Looking ahead

ISG now expects the Fed to cut rates at the June and September meetings, once there is clearer evidence of disinflation.

Want more market insights?

In the latest Spotlight video, Goldman Sachs Ayco’s Immanuel Tan discusses what’s in store for the year, including:

• Continuing positive economic momentum despite persistent volatility
• Anticipated inflation easing
• What’s next for the Fed
• Corporate earnings