January’s solid start

A quick review of the table of returns shows that the new year started favorably. As we saw last year, global markets continue to outperform, but there has been a shift in leadership in U.S. stocks.

Notably, the tech-heavy Nasdaq Composite is lagging, while smaller company stocks, as measured by the more speculative Russell 2000 Index, are out in front.

Source: Wall Street Journal, MSCI.com, Bloomberg, MarketWatch
January 2026 returns: December 31, 2025–January 30, 2026
**in US dollars

Though we only finished the first inning, we are seeing the rally broaden, which is encouraging.

Optimism that the U.S. economy will accelerate has fueled the market rotation, encouraging investors to seek out companies whose fortunes are more closely tied to the business cycle. Fed rate cuts have also bolstered returns for smaller companies.

Yet, a slow start for the Nasdaq doesn’t necessarily mean that the AI boom is over. Profit-taking, greater selectivity, and concerns about market concentration may be at play.

January Barometer

The so-called January Barometer holds that the market’s performance in January, as measured by the S&P 500 Index, foreshadows how stocks will perform during the year.

Since 1970, January finished higher 33 times and fell 23 times, excluding 2026’s advance (St. Louis Federal Reserve data; excludes reinvested dividends).

How accurate is the barometer? As illustrated in Table 2, a positive January, coupled with a positive year, occurred 29 times since 1970. Simply put, when January finished higher, the S&P 500 gained ground 29 times. The average increase: 19%.

There were only four years in which January was positive, but the year finished lower. The average loss was 5.2%.

Data Source: St. Louis Federal Reserve, 1970-2025, dividends not included in S&P 500 returns.
Past performance is no guarantee of future results.

If January posts a decline, all is not lost, but an up year is less likely.

When January finishes higher, the January Barometer has been a ringing endorsement for the full year, though let’s not discount the possibility of market pullbacks, as we saw last year.

Why does a positive start typically result in a favorable year?

If the year begins on a favorable note AND indexes tend to move higher, bullish sentiment has the upper hand. Put another way, the bears are starting out at a disadvantage AND must overcome the market’s tendency to move higher.

However, a strong start to a year can be derailed by policy missteps, recessions, rising interest rates, or other unexpected economic headwinds.

Still, tools like the January Barometer provide interesting signals, not guarantees. Market performance is still driven by economic fundamentals, as history has consistently demonstrated.

I trust you found this review to be insightful. If you have any questions or simply want to talk through your portfolio or other financial goals, please don’t hesitate to reach out to me or anyone on our team.

We’re always here for you.