Kristy:
Markets navigated a range of headlines to start the year: Q4 earnings, escalating geopolitical tensions, and the threat of new tariffs. Despite the news, the S&P 500 posted a 2% gain for the month. But the real story of January’s was signs of market broadening, with both small caps and value equities outperforming the broader index.
Elsewhere, the Fed kept rates on pause, as widely expected. And precious metals top every leaderboard, with both gold and silver rallying sharply to start the year.
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Looking ahead, we believe a strong economy and improving macro data increase the cost of staying on the sidelines. As a result, we continue to prefer stocks over bonds, and bonds over cash.
Faye:
At a high level, the macro backdrop looks constructive. Growth surprised to the upside last year, and momentum has continued – GDP revisions for 2026 continue to move higher as fiscal stimulus and AI-driven productivity support further growth.
Importantly, inflation data has continued to trend in the right direction, and tariff pass-through has remained largely limited. December core CPI came in below expectations, that was continuing a normalizing trend, and we expect inflation to continue to moderate through the rest of 2026, giving the Federal Reserve room to stay patient in the near term.
1:20
Kristy:
We’ve seen focus shift recently from the macro to the micro. Q4 earnings results are in full swing; both EPS and sales beat rates are elevated versus history. We saw big beats at the start of reporting from large financials, highlighting elevated deal-making and strong consumer trends. For the tech names, AI monetization and capex guidance remain in focus.
While mega-cap tech is expected to continue to lead, all 11 sectors are expected to deliver positive EPS growth over the year - an improvement compared to recent history and evidence of the broadening out trend that began in 2025. So, while growth stocks retain their title for highest overall earnings growth, value wins in acceleration.
2:00
And finally, we had our first FOMC meeting of the year in late January. Expectations for the number of rate cuts in 2026 haven’t changed, but the timing has: cuts are now expected later rather than earlier, potentially reflecting faster-than-expected progress on inflation, rather than labor-market deterioration.
Faye:
So, let’s pull this all together:
• We remain constructive on equities in 2026, and while we continue to like tech and growth, we don’t think AI equities are the only game in town anymore. We like value and cyclical exposures as economic growth accelerates.
• We see opportunity to seek income beyond cash, we favor core bonds for ballast and flexible bond strategies. With a preference particularly in securitized debt, EM bonds, and select private credit for income.
• And finally, we believe diversifiers like gold and other precious metals, plus liquid alternatives, can help improve portfolio outcomes by providing uncorrelated returns or enhanced income.
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Check out the full Advisor Outlook for more of our best thinking, and reach out to your local market team or call 877-ASK-1BLK to dive more deeply into our outlook for 2026.
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