Executive Summary

• U.S. equities sustain positive momentum alongside improving market breadth
• Small cap, Midcap, and Value leadership persists
• Parabolic gains in precious metals unwind sharply
• Inflation, employment, and consumer confidence data remain mixed
• S&P 500 companies on pace for fifth consecutive quarter of double-digit EPS growth
• Nasdaq and the ongoing evolution of capital markets

U.S. equity markets began 2026 with a constructive tone, extending the positive momentum established through the back half of last year. January performance was characterized by broad participation, improving breadth, and continued leadership from economically sensitive and value‑oriented segments of the market. The overall market backdrop remained supportive, underpinned by resilient growth expectations, stable financial conditions, and strong corporate balance sheets.

Unlike late‑cycle environments marked by narrow leadership, January’s advance was notable for its diversity of winners across market capitalizations and sectors. Equal‑weight indices outperformed their cap‑weighted counterparts, small‑ and mid‑capitalization stocks delivered solid absolute gains, and cyclical sectors generally outpaced defensives. This rotation reflected investor confidence in the durability of economic activity and an ongoing recalibration toward balance following last year’s growth‑heavy leadership.

From a macro perspective, markets continued to benefit from a favorable mix of easing inflation pressures, steady labor market conditions, and a Federal Reserve firmly in wait‑and‑see mode. Interest rates remained well‑contained, credit conditions stayed accommodative, and liquidity remained ample, allowing risk assets to absorb policy and geopolitical headlines without material disruption. Against this backdrop, January served less as a turning point and more as a confirmation of trends already in motion: broader participation, selective rotation, and an emphasis on earnings durability rather than pure multiple expansion.

Looking ahead, the early‑year setup appears constructive. While volatility is likely to ebb and flow as markets digest incoming economic data and policy developments, the underlying foundation entering 2026 reflects healthy internal market dynamics and a growing opportunity set across styles, sectors, and capitalizations.

January gains were led by small‑ and mid‑capitalization indices, with the Russell 2000 and S&P MidCap 400 outperforming large‑cap benchmarks. Equal‑weight versions of the S&P 500 and Nasdaq‑100 also outpaced their cap‑weighted counterparts, reinforcing the theme of improving breadth. Large‑cap indices posted more modest gains but remained firmly positive on a multi‑month basis, reflecting consolidation after strong advances in 2025 rather than any deterioration in trend. The dispersion between equal‑weight and cap‑weighted indices suggests investors are increasingly willing to look beyond the largest constituents, favoring broader earnings participation and valuation normalization.

Style performance in January continued the rotation that began late last year. Value outperformed growth across both large‑ and small‑capitalization universes, with particularly strong gains in small‑cap value. This leadership reflects a combination of factors, including sensitivity to domestic economic momentum, easing financial conditions, and renewed interest in segments that lagged during periods of more concentrated growth leadership. Growth stocks, while lagging on a relative basis, maintained positive longer‑term performance trends, particularly within large caps. The January dynamic appears less about abandoning growth and more about broadening the opportunity set, as investors rebalance toward a more diversified style exposure entering the new year.

Sector Performance

At the sector level, January performance was led by economically sensitive areas, including Energy, Materials, Industrials, and Communication Services. Strength across these groups reflected improving confidence in global demand, capital spending, and cyclical activity, as well as favorable pricing dynamics in select commodity‑linked industries.

Defensive sectors delivered more muted returns, consistent with a risk‑supportive environment and a rotation toward growth‑sensitive exposures. Importantly, sector dispersion remained orderly, with no broad signs of stress or capitulation. Instead, performance reflected healthy rotation within an overall constructive market trend, rather than a flight away from any single area of the market.

Small‑cap sector performance further underscored January’s pro‑cyclical tone. Energy, Materials, and Industrials led the advance, supported by improving domestic demand expectations and a stabilization in financing conditions. Financials also posted solid gains, benefiting from improved operating leverage and a steeper yield environment since late 2025.

More defensive and growth‑oriented small‑cap sectors lagged on a relative basis, though most remained positive over the broader three‑month and year‑to‑date horizons. The overall takeaway from small‑cap performance is one of re‑engagement, as investors selectively re‑entered areas of the market that had been more sensitive to macro uncertainty earlier in the cycle.

From a technical standpoint, although the initial breakout to new highs occurred in September, January marked the first month in which the Russell 2000 exhibited meaningful follow‑through beyond the prior cycle high at the 2,486 resistance level.

Rates, Oil, Precious Metals, and the Dollar

January’s cross‑asset backdrop remained supportive of risk assets. Interest rates were largely range‑bound, reinforcing financial stability and helping sustain equity valuations. Commodity performance was mixed but constructive, with strength in energy‑ and materials‑linked markets aligning with improved cyclical sentiment.  After declining five consecutive months to close out 2025, WTI crude rebounded 13.6% in January.  And while crude has moved above its 50-d and 200-d simple moving averages, the longer-term, multi-year trend of lower highs remains intact.  

The greenback (DXY) declined for the third consecutive month (-1.4%) while temporarily breaking down below a seven-month support level ($96.38) to a four-year low.  A tactical relief rally has since set-in, working off oversold momentum readings (daily RSI 23); however, the longer trend appears lower.

Precious metals continued to attract interest as portfolio diversifiers, reflecting ongoing demand for real assets alongside risk exposure. At their January high, gold and silver were +29.5% and 69.8%, respectively. However, during the last session of the month, gold and silver declined 12.8% and 36.1%, respectively, at their intra-session lows before closing the day with declines of 9% and 26.4%, respectively. For silver it was the single worst one-day decline since at least 1950. The previous record decline since 1950 was -22% intraday, or -17% on a closing basis, both of which took place on Oct. 10, 2008. Macro news and a reversal of crowded trades contributed to the steep declines. Despite the steep drawdown, gold and silver closed out the month +13.3% and +18.9%, respectively.

Economic Data

January’s U.S. economic data painted a mixed but market‑relevant picture, with inflation signals becoming less uniform and growth indicators diverging across sectors. Headline CPI for December was fully in line with expectations, while core CPI came in slightly cooler on a month‑over‑month basis, reinforcing the view that consumer inflation pressures continue to moderate at the margin. However, that message was complicated by a significant upside surprise in producer prices. Core PPI and final demand PPI both materially exceeded consensus on a monthly basis, with year‑over‑year measures also running hotter than expected, underscoring persistent pipeline cost pressures that remain inconsistent with a smooth disinflation narrative.

Labor market data leaned softer overall, though not decisively so. Nonfarm payroll growth undershot expectations in December, with both headline and private payrolls coming in below consensus, while prior months saw modest downward revisions. Despite slower job gains, the unemployment rate declined modestly, and wage growth remained firm, with average hourly earnings running above expectations on a year‑over‑year basis. High‑frequency labor indicators, including jobless claims, remained historically low and relatively stable throughout the month, suggesting labor market cooling remains gradual rather than abrupt.

Activity data showed notable bifurcation. Manufacturing indicators remained contractionary, with ISM Manufacturing slipping further below 50, while services activity surprised sharply to the upside, as ISM Services posted one of the strongest beats of the month. Hard data was more constructive, with industrial production and capacity utilization exceeding expectations, supporting the view that underlying economic momentum remains resilient despite softer survey‑based manufacturing signals. Third‑quarter GDP was revised slightly higher, confirming robust growth momentum exiting last year, while price components within GDP remained elevated but stable.

Consumer demand data held up reasonably well. Retail sales exceeded expectations across headline and ex‑auto measures, pointing to continued spending resilience, even as consumer confidence surveys were mixed. The Conference Board confidence index disappointed relative to expectations, while the University of Michigan sentiment readings improved modestly, reflecting ongoing tension between household balance‑sheet strength and inflation sensitivity.

Taken together, January’s data complicated the near‑term macro narrative for markets. While headline inflation and employment growth showed signs of moderation, firm wage growth, strong services activity, and upside surprises in producer prices suggest that underlying inflation pressures have not fully dissipated. For capital markets, this combination reinforced rate sensitivity to incremental data and supported continued volatility in front‑end policy expectations rather than a clear shift toward an imminent easing cycle.

Corporate Earnings

Fourth‑quarter earnings season has gotten off to a solid start, with early reporters reinforcing a broadly constructive profit backdrop for U.S. equities. With roughly one‑third of S&P 500 companies having reported, 75% delivered EPS beats and 65% have exceeded revenue expectations, resulting in aggregate earnings coming in 9.1% above estimates, well above historical averages. Importantly, the magnitude of earnings surprises has more than offset the slightly below‑average beat rate, lifting the blended S&P 500 earnings growth rate to 11.9% year‑over‑year, which—if sustained—would mark a fifth consecutive quarter of double‑digit earnings growth. Results have been driven primarily by Information Technology, Industrials, and Communication Services, where outsized upside surprises from several mega‑cap and cyclical leaders have meaningfully boosted index‑level growth.

Margins have also been a notable positive. The S&P 500 is on pace to report a net profit margin of 13.2%, According to FactSet, this is the highest level on record underscoring strong operating leverage despite ongoing cost and wage pressures. While revenue beats have been more modest in magnitude, top‑line growth remains healthy at 8.2% year‑over‑year, representing the second‑strongest revenue growth rate since mid‑2022 and extending the index’s streak of revenue expansion to 21 consecutive quarters. Looking ahead, early guidance trends are encouraging, with positive EPS guidance for Q1 2026 outpacing negative guidance, and analysts continue to forecast double‑digit earnings growth through 2026, supporting the durability of the earnings cycle even as valuation multiples remain elevated.

Nasdaq and the Ongoing Evolution of Capital Markets

Beyond market performance, January provided continued evidence of structural transformation within U.S. capital markets, with Nasdaq playing a central role in several forward-looking initiatives. The exchange remains actively engaged in market advocacy and innovation efforts designed to enhance accessibility, liquidity, and resilience for listed companies and investors alike.

Key areas of focus include the exploration of extended and potentially 23-hour trading models, which aim to better align U.S. markets with global participation and evolving investor behavior. In parallel, Nasdaq continues to engage in discussions around digital asset infrastructure, tokenization, and the modernization of market plumbing to support future issuance and trading models.

In January, Nasdaq alerted market participants to an upcoming market structure update related to fractional share trading, which will go into effect on Feb. 23. While fractional trading itself is not new, the change formalizes how such trades are reported and reflected in consolidated market data. Historically, trades involving fractional share quantities were required to be reported as whole shares, limiting transparency around true trade size and volume. Under the updated framework, trades in NMS stocks with fractional components will now be reported with greater precision, improving the accuracy of last‑sale data and consolidated volume statistics. From a market perspective, the update is largely technical in nature and is not expected to alter trading behavior, but it represents an important modernization of equity market infrastructure as fractional and small‑dollar trading continues to grow.

Nasdaq’s efforts in these areas reflect a broader commitment to supporting listed companies through policy engagement, regulatory dialogue, and infrastructure investment. As capital markets evolve, these initiatives are intended to provide issuers with greater flexibility, investors with improved access, and the ecosystem as a whole with enhanced efficiency and transparency. Over time, developments such as fractionalization, expanded trading hours, and digital settlement frameworks may further reshape how capital is raised, allocated, and traded.

Summary

While near‑term conditions warrant a degree of caution, particularly given that February has historically been a seasonally weaker period for the S&P 500, the broader “message of the market” does not suggest a meaningful deterioration in the intermediate or long‑term trend. Recent price action and momentum signals point more toward consolidation than the start of a sustained downturn. As a result, periods of volatility or pullbacks in the weeks ahead should be viewed within the context of an ongoing, constructive backdrop. While patience may be required in the near term, the weight of the evidence continues to favor maintaining a constructive market outlook over a longer‑term horizon.

The information contained herein is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. All information contained herein is obtained by Nasdaq from sources believed by Nasdaq to be accurate and reliable. However, all information is provided “as is” without warranty of any kind. ADVICE FROM SECURITIES PROFESSIONAL IS STRONGLY ADVISED.