- Global GDP growth is expected to remain stable in 2026, broadly matching 2025 levels, with the U.S. maintaining a relative growth advantage over most developed peers.
- U.S. growth expectations are supported by tax policy, real wage gains, and rising household wealth, while Europe, particularly Germany, faces more muted momentum. Longer‑term growth is increasingly linked to AI‑related infrastructure and capital investment, though near‑term benefits remain uneven.
- Consumer spending continued to support growth, even as a K‑shaped economy weighed on confidence among lower‑income households. Markets broadly maintained a risk‑seeking posture across equities and credit, with renewed interest in non‑U.S. assets, though policy uncertainty and concerns that the AI trade has become overbought contributed to periodic bouts of volatility.
- Global equities posted modest gains in January despite heightened volatility. Emerging markets significantly outperformed developed markets, supported by strong Asian export data and improving cyclical momentum across manufacturing, trade flows, and domestic consumption. The S&P 500 reached a historic milestone, crossing 7,000 for the first time on January 28th, while the Nasdaq and Russell 2000 also posted gains, highlighting improving small‑cap participation despite mid‑month volatility.
- The FOMC held the policy rate steady at its January meeting, citing the need for greater confidence that inflation is moving sustainably toward target before easing further. Policymakers remain data‑dependent, with markets currently pricing in one to two rate cuts in 2026.
- Inflation has continued to moderate but remains elevated in services‑related categories, particularly housing and core services ex‑housing, suggesting that progress toward the Federal Reserve’s target is likely to remain uneven.
- The labor market remains soft, with slower job growth and easing wage pressures pointing to reduced inflationary risk, though overall conditions remain healthy by historical standards. Assessment of recent economic conditions remains complicated, as several key data releases continue to reflect residual distortions and delays following last year’s government shutdown, limiting policymakers’ ability to fully gauge underlying momentum.
- Internal debate within the Federal Reserve persists over whether policy remains sufficiently restrictive, while heightened political scrutiny and diverging views on the medium‑term path for rates have added to uncertainty around the policy outlook.
- Late in January, Kevin Warsh’s nomination as Federal Reserve chair became the defining market event, triggering sharp reversals across currencies, precious metals, and risk assets as expectations shifted toward a more hawkish, independent Fed.
- During his tenure as a Federal Reserve Governor from 2006 to 2011, Warsh developed a hawkish reputation rooted in inflation concerns and opposition to expansive monetary stimulus, including criticism of quantitative easing, large‑scale asset purchases, and balance‑sheet expansion despite his advisory role during the 2008 financial crisis.
- More recent commentary, however, suggests this stance has moderated somewhat, with Warsh open to lower rates if supported by AI-driven productivity dynamics while remaining skeptical of unconventional easing.
- The US dollar fell to a four‑year low before rebounding sharply after the Warsh announcement, driving large currency swings and contributing to gold and silver’s worst single‑day declines since 1980 after both metals surged throughout 2025 and into early 2026.
- While the broader consensus remains constructive, uncertainty persists, and investors are generally best served by aligning portfolios with long‑term goals and risk tolerance while maintaining diversification, particularly as emerging AI‑related business model concerns have driven bouts of severe sector‑specific volatility (e.g., enterprise SaaS, legal‑oriented businesses).
