The year has gotten off to a constructive start in terms of absolute returns, but the underlying market dynamics are more complex than headline index returns alone might suggest. The most meaningful market development in January was the continuation of broader stock market participation and leadership than what had come to define the prior several years. In fact, the month saw a near inversion of market leadership, compared with the general norm of 2023 through 2025. Emerging markets and small caps (both domestic and foreign) led the way on the upside, followed by foreign developed markets, US value stocks, and the equal-weighted S&P 500. Meanwhile, the traditional market cap-weighted S&P 500 and domestic growth stocks took a backseat as it became increasingly evident how high the bar had truly been set for the “Magnificent 7” and other mega-cap companies.

The tide hasn’t necessarily fully gone out on AI darlings at this point, though it appears investors are beginning to be more discerning about what they pay for growth. This rotation, however, underscored just how quickly market leadership can shift and reinforced the value of diversification and risk management that was largely unrewarded over the past few years.

Elsewhere in notable market developments during the month, precious metals began to dominate headlines, soaring to new all-time highs before experiencing a historic and abrupt pullback to close out the month. The rally in these commodities reflects a mix of geopolitical risk, fiscal concerns, interest rate uncertainty, and good old-fashioned investor speculation. Central bank demand and ongoing reserve diversification trends have also contributed to sustained strength in precious metals markets. While diversification into uncorrelated asset classes like gold and silver can make sense, the elevated volatility and swings in investor demand underscore how challenging it remains to predict a durable path forward for the 2026 “gold rush.”

From a geopolitical perspective, tensions remained high in various arenas around the world, including several dynamics involving the United States. With tariff fears being renewed once again, trade policy uncertainty resurfaced, which continues to add complexity to the global growth outlook and has implications for inflation and corporate earnings on the home front. The US dollar has continued exhibiting sensitivity to this and other macroeconomic dynamics, gradually depreciating during the month relative to other currencies and providing a further tailwind for non-US markets.

Toward the end of the month, the Federal Reserve’s decision to hold interest rates steady reinforced its message that any further monetary policy easing will be data-dependent and gradual. While inflation has steadied – and future expectations are largely anchored – the rate of price increases remains above target. At the same time, economic activity continues to show resilience, albeit because of a relatively narrow set of economic growth drivers. As a result, the Fed is in no rush to cut rates aggressively. In related news, the announcement of former Fed Governor Kevin Warsh to replace current Fed Chair Jerome Powell removed lingering uncertainty around the decision. Despite market noise around the announcement, we expect Warsh to act independently and within the consensus-driven FOMC framework. Any near-term rate support is likely modest, as he has shown limited desire for aggressive easing or balance-sheet-driven policy.

Our Perspective

January offered early evidence that 2026 is unlikely to be yet another year driven by a single narrative or narrow group of winners. Instead, despite markets continuing to hit new all-time highs, the environment appears increasingly defined by competing forces, new market leadership, and policy uncertainty. This backdrop elevates the importance of thoughtful portfolio construction and prudent risk management. We remain well-suited as an experienced investment manager with time-tested disciplines to navigate such evolving conditions with a singular focus on delivering successful outcomes for clients.

Our View

Economic Cycle		The economy continues to give off mixed signals, with growth remaining relatively resilient but the labor market remaining tight with very few new hirings. Both fiscal and monetary policy remain generally accommodative to growth, though inflation concurrently remains above-target and poses potential risk for reacceleration.
Stock Market		The US stock market continues to trade near all-time highs, though earnings expectations set a high bar for companies to meet in justifying valuations. In the possible absence of further multiple expansion, earnings growth will likely be a key determinant in this year’s path of returns.
Bond Market		While stubbornly elevated inflation and resilient economic growth could continue to push longer-term yields higher, a sudden slowdown in growth could see a restarting of the cutting cycle priced into the market and see yields fall. Corporate spreads remain near historical lows.
Important Issues on the Radar		Geopolitical Risk: Trade policy, rolling conflicts including US involvement, and broader turmoil around the world present a backdrop of lingering uncertainty when it comes to the geopolitical impact on markets. These types of risks and events can often not be handicapped, so prudent portfolio management with an eye toward the long term is key.
		AI Optimism: Despite the bar continuing to inch higher for many AI-related companies in what sort of results are viewed positive by investors, the sustained spending boom in semiconductors and AI infrastructure continues to support this segment of the market. Investors will eventually demand tangible return on this massive spending, the timing of which will be crucial to monitor.
		Stock market concentration: Historic levels of US equity market concentration that had built over the past several years has begun to unwind in the early innings of 2026. To the extent this broadening continues out of the AI-dominated “big tech” world, diversified investing will be crucial for mitigating risk and participating in upside.

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Source: Bloomberg.

All investments contain risk and may lose value. This material contains the opinions of Manning & Napier, which are subject to change based on evolving market and economic conditions. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but not guaranteed.