Monthly Market Review
January 2026
U.S Overview
January brought a cautious but positive start to U.S Equity markets. Investors continue to move toward more reasonably valued stocks after last year’s strong growth in tech and AI-related stocks left some investors questioning the high valuations in the sector. Market skepticism regarding the valuation of tech stocks has led some investors to re-allocate capital to small caps, as reflected by the outperformance of the S&P Small Cap 600 Index against the S&P 500. This recent trend is also demonstrated in our portfolios. Our Diversified portfolios, which maintain some exposure to small caps, showed stronger performance for the month of January relative to their counterparts.
As some in the markets began their rotation away from the tech sectors, the market as a whole remained focused on monetary policy. Investors closely watched signals from the Federal Reserve for guidance on the pace and timing of potential interest-rate changes, contributing to short-term market volatility during the month. At the end of January, the Fed voted to maintain interest rates at their current levels, which should continue to provide less volatility to the fixed income portions of our portfolios.
Inflation showed some signs of moderating but remained significantly above the Federal Reserve’s target rate (largely being driven by inflation in the service sector). Despite inflation, steady consumer spending has provided support for the broader economy. However, the labor market showed further signs of cooling, reinforcing expectations that economic growth is slowing but not stalling.
International Overview
Ongoing tariff discussions and geopolitical developments continued to weigh on global manufacturing activity, particularly in parts of Asia. Inflation trends across the region remained mixed, with some countries experiencing easing price pressures while others continued to manage elevated but stable inflation.
In Europe, economic growth remained subdued, and increased government spending, especially related to defense and infrastructure, continued to strain public finances. Inflation across the Eurozone remained relatively stable.
Emerging markets experienced modest support from a generally weaker U.S. dollar, as the weakening dollar lessened the cost of emerging market debt held in U.S. dollars (e.g. IMF debt). It should be noted that the benefit of a weaker dollar in some emerging market countries was undermined by increased armed conflict that has exacerbated debt challenges in certain countries, underscoring the uneven nature of global economic conditions. Our portfolios have minimal exposure to these countries.
Overall, international economic data in January reflected a globally interconnected economy that remains resilient, though sensitive to trade policy and armed conflicts.
What does this mean for you?
Our broad-based approach has allowed us to navigate January’s market fluctuations. Exposure across asset classes and sectors helped manage volatility while maintaining investment positions in areas of opportunity, such as small caps.
Resilient U.S. consumption, improving balance between growth and valuation, and the stabilizing role of fixed income all contributed to portfolio resilience during the month. While markets may continue to experience short-term swings, diversification remains an important tool for managing such uncertainty.
What we are monitoring
As we move further into 2026, there will be continued focus on:
Federal Reserve policy shift under new chairman
The path of inflation and interest rates
Geopolitical tension between the U.S. and its European allies
Policy clarity around tariffs and global trade
Economic growth trends in the U.S. and abroad
While uncertainty remains, the underlying economy continues to demonstrate an ability to adapt, though we can expect this adaptability to be tested in this election year. However, our approach remains unchanged as we continue to help portfolios remain resilient across a wide range of potential outcomes.
As always, thank you for your continued trust and support. It is our privilege to serve as stewards of your financial assets.
Sincerely,
The Faith Foundation Team