January Market Commentary: Reassessing Risk in a Shifting Landscape

January provided a complex but ultimately constructive start to 2026. Although geopolitical risks intensified at several points, investor confidence improved and risk assets generally moved higher. The month illustrated how markets are increasingly anchored in underlying economic signals rather than headline volatility.

Equities Regain Positive Momentum

Global equities gained 3% in January, supported by a series of encouraging macroeconomic developments. The tone of the data helped restore confidence in the durability of the economic cycle.

Key drivers included:

• Activity indicators in the United States, the euro area and Japan that exceeded expectations.

• Continued moderation in inflation across major economies.

• Real income growth that supported consumption.

• Upgrades to corporate earnings forecasts, particularly in emerging markets, Japan and materials related industries.

The improvement in fundamentals helped support a measured rise in equity valuations.

A Broader Market Structure Emerges

The widening of market leadership was one of the most constructive developments of the month. Returns were no longer concentrated in a narrow group of companies or regions.

Highlights included:

• United States small cap shares rising 5%.

• The Magnificent Seven rising by only 1%.

• Emerging market equities gaining 9%, their second strongest January in 20 years.

• Japan’s Nikkei 225 gaining nearly 6%.

Style leadership remained region specific. Growth outperformed value in Europe, whereas in the United States the value recovery continued.

Fixed Income Adjusts to Stronger Data and Renewed Fiscal Questions

The global bond market faced a more challenging backdrop. The global aggregate index advanced only 1% , as yields moved higher in several major markets.

Key developments were:

• A notable sell off in Japanese government bonds following the announcement of snap elections.

• A rise in United States front end Treasury yields as the expected timing of the first Federal Reserve interest rate cut moved later into the year.

• Stronger performance in French and Italian government bonds, supported by reduced political uncertainty and attractive carry.

• Stronger returns from inflation linked bonds, which benefited from a modest increase in long term inflation expectations.

The divergence in performance across regions reflected varying fiscal trajectories and differing sensitivities to the improving activity data.

Geopolitical Events Create Selective Rather Than Broad Market Reactions

Geopolitical tensions increased after the United States led operation to remove the Venezuelan President and following new tariff threats directed at various European countries. Although these developments attracted considerable attention, markets differentiated carefully between assets exposed to these risks and those that were not.

Key reactions included:

• Gold rising by nearly 13%.

• European defence related equities rising 18 %.

• More muted responses from the VIX and from currency pairs such as the euro against the Swiss franc

This selective pattern emphasised that markets are becoming more discerning about the difference between localised and systemic geopolitical risks.

Commodities Strengthen Across Energy and Precious Metals

Commodities delivered strong returns in January, supported by a combination of weather patterns, inventory movements and central bank policy actions.

Key points included:

• The Bloomberg Commodity Index rising 10%.

• Crude gaining 13.6% on colder winter conditions and reduced inventory levels.

• Higher natural gas prices in both Europe and the United States.

• Continued central bank purchases of gold, particularly by China, reinforcing demand during a period of elevated geopolitical risk

Conclusion: Diversification and Quality Remain Central Themes

January confirmed the importance of maintaining diversified and resilient portfolios. Equity leadership broadened in a constructive manner, with emerging markets, Japan and smaller companies contributing meaningfully to returns. Bonds faced headwinds from stronger economic data and fiscal uncertainty but continued to offer valuable income characteristics and defensive qualities.

In an environment where growth is proving steadier than anticipated and geopolitical risks remain elevated, portfolios anchored in diversification, selective risk exposure and high-quality assets are best positioned. Exposure to gold, European defence companies and high-quality defensive equities can enhance resilience if market volatility rises again.