Global markets began 2026 with positive returns across most major asset classes despite an ongoing backdrop of macroeconomic, political, and geopolitical uncertainty. We saw some continuation of themes that ran through 2025 – rotation across regions, styles, currencies, and asset classes and less reliance on US mega-cap technology shares for growth. Bond markets delivered positive but more modest returns. The US dollar again weakened, meaning the benefit of a positive month for the S&P 500 was pared back.
Source: Bloomberg
Global equities advanced meaningfully during the month, with the global equity index (above in grey) rising 1.7% in euro terms, supported by strong performance across Asia (shown in yellow) and emerging markets (in red). Improving economic data, low or falling interest rates and solid company earnings underpinned gains in these regions, offsetting more muted returns across parts of the developed world, particularly the United States.
Within emerging markets, equities across Latin America and Asia rallied sharply, supported by US dollar weakness and renewed investor appetite for higher growth companies. At a country level, Korea performed especially well, while Brazil also posted notable gains, benefiting from rising commodity prices and improving domestic sentiment. In China, shares in property developers jumped after reports that Beijing had effectively dismantled its long-standing “three red lines” policy, removing borrowing limits that had constrained developers and contributed to a prolonged debt crisis.
Within developed markets, performance was more mixed. In the US, January marked a continuation of the style rotation that had begun to surface at various points in 2025. Value-oriented and cyclical sectors outperformed growth, while the predominantly technology index, the Nasdaq (above in pink), edged down 0.2%. The more diversified S&P 500 (in green) posted a modest gain of 0.2%, lagging many international markets. The previous “darlings of the market” known as the “Magnificent Seven” underperformed the broader index, highlighting increasing investor sensitivity to stretched valuations, earnings quality, and increased capital spending.
This shift was reinforced by heightened earnings-related volatility within the US technology sector. A notable example was Microsoft, which recorded its largest one-day share price decline since March 2020. Despite delivering strong earnings growth, investor concerns around elevated capital expenditure and the lengthening payback period for AI-related investment weighed on sentiment.
Elsewhere, Japanese equities (blue line in the chart) delivered one of the strongest performances among developed markets, rising 5.3% in euro terms. Gains were amplified by a mid-month appreciation in the yen, providing an additional currency tailwind for euro-based investors. Equity strength was underpinned by ongoing corporate governance reforms, robust capital expenditure trends, and improving consumer sentiment. Investor confidence was further boosted by a surprise election announcement from Prime Minister Sanae Takaichi, who is seeking a strengthened mandate for her reflationary policy agenda centred on fiscal stimulus, tax reductions, and wage growth. While equity markets welcomed the growth narrative, bond markets were more cautious, reflecting concerns around increased government borrowing given Japan’s already elevated debt burden.
European and UK equities (purple and orange in the chart, respectively) posted modest but consistent gains in January. Inflation continued to ease across both regions, while economic indicators began to show early signs of stabilisation. With the European Central Bank expected to maintain policy rates at current levels in the months ahead, and supportive fiscal developments, most notably Germany’s newly implemented 2025 budget, confidence has remained firm. These conditions reinforced the positive momentum seen in European equity markets toward the end of last year, with inflation coming under control and resilient earnings helping lift indices to multi-year highs. UK equities displayed similar resilience, underpinned by moderating inflation, gradual real wage growth, and positive spillover effects from strengthening economic conditions across Europe.
Bond markets added an important additional layer to January’s market narrative. One month into the year, the longer dated government bonds underperformed across most major markets. Japanese government bonds stood out as the weakest segment, with the yield curve steepening sharply amid rising inflation expectations and concerns over debt sustainability. In contrast, European government bonds outperformed their US counterparts, benefiting from lower supply, easing inflation and expectations of lower for longer interest rates.
Source: Bloomberg
In the US, Treasury markets were more challenging. Although the Federal Reserve held interest rates steady, long-end yields rose through January, leading Treasuries to close the month down 0.2%. The Federal Open Market Committee meeting itself proved largely anticlimactic, with Chair Powell maintaining an optimistic “Goldilocks” tone on the economy, highlighting steady activity and signs of stabilisation in the labour market. Although inflation remains above target, Powell suggested much of the current overshoot is tariff-related and likely to peak in the second quarter of the year. Following the appointment of Kevin Warsh to take up the reins as the new Fed Chair, markets speculated that current interest rate policy would remain relatively unchanged.
Corporate bonds were a clear winner within fixed income, albeit with modest gains with the global corporate bond index (in orange on the chart) rising 0.3% versus 0.1% from the broad global bond index (in pink). Risk appetite remained firm, global financial conditions remained positive, and default expectations stayed contained. European corporate bonds outperformed, helped by the relative strength compared with European government bonds.
Commodities also played a meaningful role in shaping market dynamics. Energy prices surprised to the upside, with Brent crude rising by roughly 15% with geopolitical concerns a key driver. Gold and silver prices continued their stellar performance, right up to month end when we saw some sharp sell-offs in metal prices, mainly due to dollar strength following the appointment of Kevin Warsh to head up the US Federal Reserve (their central bank).
Looking ahead, we expect markets to remain focused on the trajectory of the US dollar, trade tensions and corporate earnings and to a lesser extent to geopolitical events. January’s market behaviour points toward a more multipolar investment environment in 2026, where returns are driven less by a single theme or region and more by underlying fundamentals and diversification across geographies, styles, and asset classes.
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This publication was prepared by Bernard Walsh, Head of Investments & Pensions for Fairstone Asset Management DAC trading as Fairstone & askpaul.
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Information as of the date of publication 04/02/2026
