Benchmark Review & Monthly Recap, January 2026

• Small caps gained over 5% and value stocks outperformed growth for the third consecutive month, while large-cap growth and Nasdaq returned less than 1%, marking a significant shift from recent years of tech dominance
• International stocks continued their 2025 momentum with emerging markets showing the strongest gains in January, aided by U.S. dollar weakness
• The Fed held rates steady after three consecutive cuts to close 2025, with the market pricing in only two rate cuts for 2026 (likely starting in June under new Chair Kevin Warsh) as inflation remains contained and the economy shows solid growth with S&P 500 earnings expected to grow 17%

Market Summary: January 2026 Benchmark Review

Key Performance Highlights

Equities: The S&P 500 reached a historic milestone, crossing 7,000 for the first time. However, market breadth improved significantly as smaller segments outperformed. Small caps gained over 5%, while the equal-weighted S&P 500 outperformed its market-cap weighted counterpart for the third consecutive month. International stocks led all equity categories, with emerging markets posting the strongest gains. Notably, large-cap growth—the previous market leader—lagged with the Nasdaq Composite rising less than 1%.

Fixed Income: Bond performance was modest in January. The 10-year Treasury yield rose from 4.18% to 4.26%, creating headwinds for rate-sensitive sectors. Municipal bonds showed the strongest performance, continuing momentum from Q4 2025. High-yield bonds also posted solid gains, while the Bloomberg Aggregate Index rose only modestly.

Economic Data

Inflation remains largely contained: December core CPI came in at 2.6%, while the Fed's preferred PCE measure showed 2.8% annually through November. However, December PPI surprised to the upside at 3.0% headline (vs. 2.8% expected) and 3.3% core (vs. 2.9% expected).

Employment data reflected a "no hire, no fire" environment with only 50,000 jobs added in December (below 70,000 expected), though unemployment dropped to 4.4%. Q3 GDP was revised up to 4.4% annualized.

Federal Reserve

The FOMC held rates steady in January as expected, ending three consecutive rate cuts. CME FedWatch indicates only two rate cuts expected in 2026. President Trump nominated Kevin Warsh as new Fed Chair, with markets monitoring this transition closely.

Outlook

Analysts expect S&P 500 earnings growth of approximately 17% in 2026, supporting current valuations despite elevated levels.