Market Pulse

Global markets closed January with modest gains but rising cross-currents. The S&P 500 hovered near 5,260 after a volatile week, finishing the month up roughly 4 percent. The Nasdaq remained firm, though intraday swings increased as investors balanced strong technology earnings against higher rate sensitivity. The Dow and Russell 2000 lagged slightly, reflecting selective profit taking in cyclicals.

The Federal Reserve left policy unchanged this week, reiterating a data dependent stance. The U.S. 10 year Treasury yield traded near 4.02 percent following the meeting as investors interpreted recent labor and inflation data as reducing urgency for near term cuts. Futures markets now price only one 25 basis point cut in the second half of 2026.

European equities remained resilient, with the STOXX 600 at multi month highs amid improving services activity. The dollar index edged back above 103 as yield differentials widened modestly. Emerging markets were mixed, with commodity exporters outperforming.

Oil traded near $82 per barrel on steady demand expectations, while gold consolidated near $2,030 as real yields ticked higher.

For you, the key signal is that markets are transitioning from liquidity driven gains to earnings and policy balance driven performance.

Deep Dive

This week’s Federal Reserve meeting reinforced a cautious stance. Policymakers acknowledged progress on inflation but emphasized that labor markets remain firm and core price pressures have not fully normalized. Headline inflation has moderated toward 2.5 percent year over year, yet core services inflation remains above 3 percent. That distinction explains why the Fed is not signaling imminent easing.

The market reaction was subtle but meaningful. The 10 year Treasury yield moved slightly above 4 percent, while the 2 year yield held near 4.30 percent. This keeps the yield curve relatively flat and signals that investors expect policy rates to remain restrictive for longer than previously anticipated in early January.

For equity investors, stable but elevated real yields create a valuation ceiling. The S&P 500 forward price to earnings multiple stands near 20 times, above long term averages. Sustaining these levels requires earnings growth near the current 8 to 10 percent expectation for 2026. If growth disappoints, multiples could compress modestly.

Credit markets, however, remain constructive. Investment grade spreads are tight relative to historical norms, and corporate balance sheets appear stable. This suggests that investors are not pricing a downturn but rather a slower normalization phase.

Your strategy should reflect this balance. Avoid assuming rapid monetary easing will support equity multiples. Instead, focus on companies with strong free cash flow and pricing power that can perform even if real yields remain elevated. Diversify rate sensitivity across sectors to reduce exposure to abrupt shifts in policy expectations.

The broader implication is that 2026 may reward disciplined allocation rather than aggressive multiple expansion. Markets are stable, but valuation tolerance is narrowing.

Quick Insights

• The S&P 500 ended January near 5,260, up roughly 4 percent for the month.

• The U.S. 10 year Treasury yield moved above 4 percent following the Fed’s steady policy stance.

• Core services inflation remains above 3 percent, limiting the pace of potential rate cuts.

• Oil held near $82 per barrel, supported by stable global demand projections.