Monthly Economic and Market Summary

• International Outperforms in January – International equities continued their dominance in January driven by a further weakening of the U.S. dollar and strong performance overseas last year. The S&P 500 delivered a muted 1.4% return while developed and emerging foreign markets advanced 5.2% and 8.9%, respectively. In the U.S., leadership shifted to mid- and small-cap equities as markets broadened and the narrow reliance on mega-cap AI stocks decreased.

• Manufacturing Delivers Strong Month – U.S. factory activity grew in January for the first time in a year, following 26 consecutive months of contraction. ISM Manufacturing PMI rose to 52.6, beating consensus expectations for 48.9, marking the highest reading since August 2022. The rebound was driven by new orders as manufacturers experienced post-holiday reordering and front-running of potential tariff increases.

• S&P 7,000 – The S&P 500 index crossed the 7,000 threshold for the first time on January 28. It took the index 6,049 days to double from 1,000 to 2,000 from February 1998 to August 2014. Comparatively, it only took 443 days to move from 6,000 to 7,000. Notably, in years following the index first closing above each 1,000-point threshold, it averaged a gain of 12.6%.

• Fed Update – The Federal Reserve met in January where the federal funds rate was held at 3.5% to 3.75%, pausing rates cuts to further evaluate the state of the economy. Expectations for up to two further cuts in 2026. President Trump later nominated Kevin Warsh to succeed Jerome Powell as Fed Chair following Powell’s term ending in May 2026.

• Economic Growth Accelerates – The U.S. economy showed robust growth in the third quarter, posting its strongest reading in two years. Gross Domestic Product (GDP) grew at a 4.3% annualized pace, exceeding economists’ forecasts of 3.2%, fueled by strong consumer spending.

• Consumer Confidence Plunges – January Consumer Confidence fell to its lowest level since May of 2014, dropping below pandemic lows of 2020. The reading of 84.5 was down from 94.2 in December. Confidence declined among all age groups, income brackets and political affiliations.

• Inflation Eases – U.S. consumer prices rose less than expected in December. “Core” prices, which exclude volatile food and energy categories, rose 0.2% over the month and 2.6% annually. The report reinforces the view that inflation is moderating and the pace of price increases is slowly moving toward the Fed’s preferred 2% annual target.

A Broadening Bull Market

As markets moved from the end of 2025 into early 2026, evidence has grown that equity leadership is expanding beyond a narrow group of large-cap growth stocks. Earnings breadth remains a key support: more than 80% of S&P 500 companies are showing positive three-month changes in expected forward revenues and earnings per share. This level of participation suggests index gains are increasingly supported by a broader cross-section of companies rather than concentrated exposure to a small group of mega-cap leaders.

Recent performance trends, as shown in the chart below, highlights a rotation away from large-cap growth leadership and a broadening out to other areas of the market. In 2025, the Magnificent 7 returned 23.0%, outperforming the S&P 500’s 17.7% and led sharply during the rebound from the April 8 lows achieving a 65.3% gain versus 38.5% for the S&P 500. However, that leadership has shifted in early 2026. Using the Roundhill Mag 7 ETF as a proxy for Magnificent 7 performance, returns have been flat year-to-date, while the equal-weight S&P 500 has gained 3.4%, reflecting improved breadth as returns become less concentrated in the largest stocks.

This shift in leadership suggests capital is rotating toward value-oriented and more cyclically sensitive segments of the market. Small- and mid-cap stocks have benefited from lower starting valuations and early signs of improving earnings momentum, while strengthening equal-weight performance indicates broader participation beyond mega-cap growth. Globally, U.S. equity representation in the MSCI All Country World Index has grown to be remarkably concentrated, while non-U.S. markets, currently trading at lower valuation multiples, have experienced greater outperformance in early 2026. Together, these trends point to a bull market that is becoming more balanced, less concentrated and increasingly supported by value and breadth rather than growth leadership alone.