Welcome back to our monthly recap for January. As we wrap up the first month of 2026, we’re energized and excited for the opportunities that the rest of the year will bring.
In this recap, we will discuss how the markets performed in January, then jump into our topic of the month: diversification and why we think it remains an important part of a balanced portfolio.
The Markets in January
January delivered a strong start to the year for global equities, with international markets leading the way. Emerging Markets posted the highest return of the major indices at 8.86%, driven by improving sentiment across Asia and renewed optimism around global manufacturing activity. Developed international markets also impressed, rising 5.22%, signaling broad-based strength outside the U.S. This early-year momentum suggests global equities may play a more meaningful role in returns if international fundamentals continue to stabilize.
U.S. markets delivered more modest—but still positive—gains. The Russell 2000 climbed 5.35%, marking a standout month for small-cap stocks as investors rotated into areas more sensitive to economic growth and interest-rate expectations. Large-cap indices lagged but remained in positive territory: the S&P 500 returned 1.45%, the Nasdaq gained 0.97%, and the Dow rose 1.80%. Compared to the more concentrated leadership of recent years, January’s pattern showed a wider mix of contributors, with small caps and value-oriented areas seeing a notable rebound.
Overall, January’s performance painted a picture of improving market breadth and stronger global participation. While U.S. large-cap tech names did not dominate the month as they have in the recent past, the combination of international strength and a small-cap resurgence offered a more balanced start to 2026. If this trend continues, investors may benefit from a more diversified allocation rather than relying solely on the narrow pockets of performance that fueled much of the prior year’s gains.
US Equity Sectors
January brought a clear shift in sector leadership, with Energy taking the top spot by a wide margin. The sector surged 14.18%, supported by rising oil prices and improving demand expectations as global manufacturing indicators showed early signs of stabilization. Materials followed closely with an 8.64% gain, benefiting from stronger commodity pricing and renewed optimism around global construction and industrial activity. Consumer Staples also posted a solid 7.51% return, reflecting steady defensive demand and stable earnings forecasts. Together, these sectors highlighted a rotation toward areas tied to real‑asset strength and steady cash flows.
On the weaker end of the spectrum, Financials delivered the lowest return for the month at –2.43%, pressured by concerns around net interest margins as rate‑cut expectations shifted throughout January. Technology hovered just below flat at –0.06%, a notable contrast to its leadership in recent years. Cooling enthusiasm around mega‑cap valuations and uneven early‑quarter earnings updates contributed to the sector’s muted performance. Meanwhile, Health Care was roughly unchanged at –0.04%, reflecting mixed sentiment around regulatory risks and shifting reimbursement expectations. Overall, January’s sector results showed investors becoming more selective, rewarding economically sensitive and commodity‑linked areas while taking a wait‑and‑see approach toward high‑growth and rate‑dependent sectors.
Bond Performance
Bond performance in January was broadly stable, with most major fixed‑income categories posting slight gains. Global bonds led the group, supported by improving international inflation data and more synchronized expectations for global rate cuts later in the year. Short-term U.S. exposures also continued to demonstrate resilience—1–3-month Treasury bills returned 0.30%, while the 1–3-year government/credit index rose 0.23%. Their low duration and limited rate sensitivity helped cushion investors from the mid‑month volatility in longer‑dated yields.
Longer‑duration U.S. Treasuries remained the weakest segment, ending the month at –0.09% as shifting expectations around Federal Reserve policy contributed to modest upward pressure on yields. The broad U.S. Aggregate Bond Index posted a slight 0.11% gain, reflecting a relatively balanced environment where neither credit spreads nor rates moved decisively in one direction. Overall, January highlighted the continued advantage of shorter‑duration and globally diversified fixed‑income allocations, while longer‑term Treasuries struggled to gain traction amid evolving rate expectations and ongoing market uncertainty.
Topic of the Month– Diversification
Diversification is simply the practice of spreading investments across a variety of asset classes—such as stocks, bonds, real estate, and even different sectors or regions—so that no single position has the power to make or break your entire portfolio. The goal isn’t to chase the highest‑performing area at any given moment, but to create a mix that can help reduce risk and provide a more stable path toward long‑term goals. By owning investments that behave differently from one another, you give your portfolio more ways to grow and fewer ways to be derailed by short‑term market swings.
Diversification has long been a foundational principle of sound investing, and we continue to believe it plays an essential role in building a balanced portfolio. When your portfolio is spread across multiple asset classes, sectors, and regions, downturns in one area have a smaller effect overall. While the past few years have rewarded a narrower set of market leaders, that doesn’t diminish the long‑term value of having a well‑diversified approach.
We know it hasn’t always felt like the best strategy recently. Concentrated positions—particularly in a handful of large companies—have dominated headlines and performance tables. But markets have a way of shifting quickly, often without much warning. When markets change, and volatility rears its head, diversification shows its strength by helping smooth out the ride and protect long-term progress.
There’s been plenty of talk about “diversification being dead,” but we don’t see it that way. Instead, we view this period as a reminder that markets go through cycles, and no single style or sector leads forever. Maintaining diversification means you’re prepared not only for today’s environment, but for the next turning point—whenever it comes.
Closing Comments
That’s it for our January recap. Thank you for the opportunity to partner with you on your financial journey. We’re here to help keep you moving towards your goals.
See you next month!
Laurence
Disclosures
Investing involves the risk of loss. This content is for informational purposes only and should not be, nor regarded as personalized investment advice or relied upon for investment decisions. Laurence Schiffman and Traverse Planning are affiliates of Clear Creek Financial Management and may maintain positions in the securities discussed in this video. All opinions expressed here are solely those of Traverse Planning and do not reflect the opinions of Clear Creek Financial Management.
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