By Keith Gangl
The start of a new year signifies a fresh beginning, a new chapter, and renewed optimism. The stock market, measured by the S&P 500, continued its upward trajectory in January, extending a streak of three consecutive positive years. The index gained 1.44% for the month, a slightly better-than-average return, though volatility increased noticeably during the period.
January brought welcome evidence of market broadening, as small-cap and international stocks outperformed the S&P 500. Investors generally view broad-based participation as a sign of a healthy investing environment, representing a shift away from the concentration in the top seven names known as the Magnificent Seven. Small-cap stocks, represented by the Russell 2000 Index (IWM ETF), surged 5.36%, while international developed markets, represented by the EFA ETF , advanced 5.09%.
While the stock market posted solid gains to start the year, volatility picked up substantially. The CBOE Market Volatility Index (VIX) jumped by 16%[1], reflecting heightened fluctuations driven by increased geopolitical tensions and notable sector rotations. On a sector basis, technology lagged in January while energy led the market — an uncommon pattern in recent years and further evidence of market broadening.
As the month drew to a close, President Trump announced Kevin Warsh as a potential new Federal Reserve chairman. The initial investor reaction suggested confidence in Warsh as an experienced candidate, causing the US dollar to strengthen while precious metals sold off aggressively. Silver experienced its worst single-day decline since 1980[2].
Looking ahead, our outlook for 2026 remains constructive, though investors should prepare for continued volatility. The foundation for sustained market strength appears solid, supported by healthy earnings expectations, resilient consumer spending, and a robust economy. January exemplified what we expect going forward: positive performance punctuated by periodic volatility. Rather than viewing market fluctuations as cause for concern, investors should recognize them as a natural feature of a broadening, maturing bull market. The diversification of leadership across market caps, geographies, and sectors suggests the rally is gaining depth and durability, characteristics that historically have supported longer-term appreciation. While short-term uncertainty is inevitable, the underlying economic fundamentals and market breadth provide confidence that 2026 can build on the momentum established in this encouraging first month.
[1] Factset VIX in January