Month in Review: January 2026

Resilience meets reality as tech dispersion fractures the Magnificent Seven narrative.

The S&P 500 (GSPC) entered 2026 with a quiet but firm 1.38% month-to-date gain, closing at 6,940.01 on January 16. This performance follows a robust 2025 where the index delivered a 16.39% price return, marking its third consecutive year of double-digit gains. However, the narrative has shifted from the broad-based 'AI hype' of previous years to a more discerning 'deployment reality' as investors weigh the structural impacts of the 'Liberation Day' tariffs against a Federal Reserve that has successfully pivoted to a neutral stance.

The primary driver of January's price action was the stark divergence within mega-cap technology. While NVIDIA ($NVDA) remains a pillar of strength after reaching a $5.03 trillion market cap in late 2025, Apple ($AAPL) has struggled, falling 10.7% from its January 2 peak to close at $255.53. This 60-percentage-point spread among the market leaders suggests that the 'Magnificent Seven' moniker is increasingly obsolete, replaced by a regime where idiosyncratic execution and tariff exposure dictate returns.

The Scorecard

Equities

  • S&P 500: +1.38% MTD (6,940.01)
  • Nasdaq Composite: +3.6% MTD (following +21.1% in 2025)
  • Dow Jones Industrial Average: +2.7% MTD (following +12.97% in 2025)
  • International Developed: +3.5% MTD
  • Emerging Markets: -1.2% MTD

Fixed Income

  • 10Y Treasury Yield: Holding near 4.2%
  • Investment Grade: Flat MTD
  • High Yield: +0.4% MTD

Other

  • Dollar Index (DXY): +0.6% MTD
  • Gold: +1.2% MTD (continuing its lockstep rally with equities)
  • Crude Oil (WTI): $59.44
  • VIX: 15.86

What Worked

The month favored sectors with high visibility into earnings and low sensitivity to the immediate implementation of the 10% effective tariff rate.

  • Communication Services: Building on its 32.4% gain in 2025, the sector led again as platforms successfully monetized AI integration.
  • Neutral Fed Policy: The Fed's decision to hold the funds rate in the 3.50%-3.75% range provided a stable valuation floor for equities.
  • Gold-Equity Correlation: Investors continued to use bullion as a structural hedge, with both assets rising in tandem as they did throughout 2025.

What Didn't Work

Valuation sensitivity and trade policy exposure were the primary detractors in January.

  • Apple ($AAPL): The 10.7% correction reflects growing concerns over hardware margins in a high-tariff environment.
  • Real Estate: After being the worst performer in 2025 (-0.35%), the sector continued to lag as the 10-year yield remained anchored above 4.0%.
  • Small Caps: The Russell 2000 (RUT) underperformed large caps as higher-for-longer neutral rates pressured balance sheets.

The Surprise

The most significant surprise was the resilience of U.S. GDP growth, which clocked in at 4.3% annualized for Q3 2025. This strength has allowed the market to absorb the 'Liberation Day' tariff shocks—which initially caused a 12% drop in April 2025—without entering a broader recessionary spiral. The market is now pricing in a 'no landing' scenario rather than the soft landing consensus of late last year.

Month Ahead Setup

As we move into February, the focus shifts to whether corporate earnings can validate the 8,001 consensus target set by major strategists for year-end 2026.

Key Questions for February

  • Can NVIDIA ($NVDA) maintain its leadership as AI spending shifts from training to inference?
  • Will the 10% effective tariff rate begin to show up in core PCE inflation, which ended 2025 at 2.9%?
  • Does the 10.7% pullback in Apple ($AAPL) represent a buying opportunity or a structural re-rating?

Positioning remains elevated, with Goldman Sachs projecting a 12% total return for the year. However, the fractured nature of the mega-cap leaders suggests that index-level gains may be harder to come by than the headline figures imply.