Investment Commentary - January 2026

January proved volatile for markets amid elevated geopolitical uncertainty, yet overall risk appetite improved as the month progressed. Global equities advanced by around 3%, while global bond markets delivered only marginal gains. Equity performance was underpinned by improving growth expectations and continued confidence in the macroeconomic backdrop. Economic data surprised positively across several regions, while inflation readings eased, pointing to further real income growth for households.

Bond markets struggled in this environment. Stronger activity data, firmer risk sentiment and idiosyncratic developments weighed on sovereign debt. In the US, shorter-dated yields moved higher as expectations for the next Federal Reserve rate cut were pushed further into the future. In Japan, long-dated government bonds experienced their weakest start to a year in decades, reflecting rising fiscal concerns.

Geopolitical risks rose sharply following US military action in Venezuela and renewed tariff threats directed at European countries. While tensions moderated later in the month around the Davos meetings, assets sensitive to geopolitical uncertainty responded quickly. Gold rose by approximately +13% over January, while shares in European defence companies gained close to +18%. By contrast, traditional risk gauges such as equity volatility and safe-haven currency pairs moved more modestly.

Within equity markets, a clear theme of broadening emerged. Investors continued to rotate away from US large-cap technology leaders toward a wider range of regions and styles. US small-cap equities performed strongly, rising around +5%, while the largest US technology stocks posted much more modest gains of +1%, slightly less than the S&P’s +1.5%.

Emerging markets delivered the strongest regional performance, advancing by around +9% during the month. Such an outperformance relative to developed markets has been rare historically for January. Among developed markets, Japan stood out, with the Topix index rising by approximately +5%.

Equity style performance also favoured smaller companies. Small-cap stocks outperformed across regions, particularly in the US, where the Russell 2000 gained around +5%. Mid-cap indices in Europe also performed well, supported by improving domestic growth expectations.

Style dynamics diverged across regions. In Europe, growth stocks outpaced value, contrasting with the value-led performance seen over recent years. In the US, value continued to outperform growth for a third consecutive month, extending the reversal of a long-standing trend.

The equity rally was driven primarily by earnings developments rather than multiple expansion. Earnings expectations for 2026 were revised higher across emerging markets, Japan and cyclical sectors such as materials. In the US, the fourth-quarter reporting season has delivered robust results to date, with reported earnings exceeding consensus expectations.

Fixed income markets delivered limited diversification benefits during January. The Global Aggregate Bond Index rose by less than +1%, as stronger economic data and concerns over public finances weighed on performance. Inflation-linked bonds were a notable exception, supported by rising long-term inflation expectations, particularly in the US and Japan.

Japanese government bonds came under significant pressure following the announcement of snap elections, which prompted a sharp steepening of the yield curve. Ten-year yields rose materially, while the yen weakened by around -1% against the US dollar.

US Treasury markets also posted negative returns. The sell-off was concentrated at the front end of the curve, reflecting a repricing of Federal Reserve policy expectations. Longer-dated yields also moved higher amid concerns around fiscal sustainability and central bank independence. Over the month, the US dollar dropped by roughly -1% against the euro.

Within the Eurozone, peripheral sovereign bonds performed relatively well. French and Italian government bonds benefited from improving risk sentiment and attractive carry, with spreads versus German Bunds tightening over the month. In France, progress toward budget approval and reduced near-term political risk supported investor confidence.

Commodity markets had a particularly strong start to the year. The Bloomberg Commodity Index rose by approximately +10% in January. Gold prices advanced by around +13%, supported by central bank demand and heightened geopolitical uncertainty. Energy prices also moved sharply higher, with Brent crude rising by roughly +16%, while European and US natural gas prices surged due to colder winter conditions and declining storage levels.