Overview
Global equities started 2026 on a constructive but uneven footing, with U.S. and Canadian markets eking out modest gains amid lingering macro and policy uncertainty. In the U.S., the S&P 500 advanced a little over 1% for the month, supported by cyclicals and defensives such as Energy, Materials, and Consumer Staples, even as Health Care, Technology, and Financials lagged. In Canada, the S&P/TSX Composite briefly hit a record high before late-month volatility pared returns to a roughly 0.7% gain, with strength in resource‑linked sectors offset by weakness in growth and rate‑sensitive names. Central banks stayed in wait‑and‑see mode: the Federal Reserve held rates steady while acknowledging elevated uncertainty, and the Bank of Canada maintained its policy rate at 2.25% as the economy continues to adjust to trade headwinds.
U.S. Market Performance & Policy
The S&P 500 finished January modestly higher, with sector leadership tilting toward Energy, Materials, and Consumer Staples, while Health Care, Technology, and Financials underperformed. Sentiment was cautiously optimistic as investors weighed improving manufacturing data and resilient services activity against sharply weaker consumer confidence and ongoing geopolitical and trade risks. A key focal point was the late‑January FOMC meeting, where the Fed kept its target range at 3.50%–3.75% and highlighted solid growth but still‑elevated inflation and an uncertain outlook, reinforcing a data‑dependent stance. Looking ahead to February, markets are focused on incoming inflation prints, labor‑market data following January’s upside payroll surprise, and any shift in Fed communication that could recalibrate expectations for further easing in 2026.
Key U.S. Economic Data
- Federal funds rate: Target range held at 3.50%–3.75% at the January FOMC meeting; policy is framed around balancing solid activity with somewhat elevated inflation and elevated uncertainty.
- Unemployment: The jobless rate edged down to 4.3% in January, with nonfarm payrolls rising by about 130,000, beating expectations and easing some concerns about labor‑market softness.
- Consumer Confidence Index: The Conference Board index fell 9.7 points to 84.5, its lowest level in nearly 12 years, reflecting growing worries about prices, jobs, and broader economic and geopolitical risks.
- ISM Manufacturing Index: The ISM Manufacturing PMI jumped to 52.6 in January from 47.9, signaling a return to expansion and the strongest reading since 2022.
- ISM Services Index: The ISM Services PMI held at 53.8, marking a 19th consecutive month of expansion and indicating a still‑solid services backdrop.
Canadian Market Update
The S&P/TSX Composite started the year strongly, reaching an all‑time high near 33,200 before a sharp pullback in the final days left the index up about 0.7% for January. Performance was mixed beneath the surface: Materials, Communication Services, Utilities, Real Estate, and Industrials ended the month in positive territory, with Materials leading by a wide margin, while Technology, Consumer Discretionary, Health Care, Consumer Staples, and Financials registered declines. Energy was a notable bright spot, supported by higher crude prices amid elevated geopolitical risk, while late‑month weakness in gold and silver weighed on Materials but did not erase earlier gains. Notably, within the Technology space there was a divergence, with hardware-related names outperforming software companies as investors favored tangible demand exposure and balance-sheet strength over higher-multiple growth segments. This split underscored a broader preference for more defensive tech exposure amid rate and earnings uncertainty.
Macro data painted a picture of a soft but not collapsing economy: Canada’s unemployment rate ticked down to 6.5% in January despite a net loss of around 25,000 jobs, driven largely by manufacturing and part‑time employment. Against this backdrop, the Bank of Canada held its overnight rate at 2.25%, reiterating that policy is “about right” as the economy adjusts to U.S. tariffs and a more challenging global trade environment, with inflation expected to remain near the 2% target. Investor focus in Canada remained on high‑quality issuers in Financials and resource‑linked sectors, particularly companies with robust balance sheets and disciplined capital allocation.
Outlook
As 2026 gets underway, markets appear to be transitioning from a purely rate‑driven narrative toward one centered on earnings durability, sector positioning, and productivity. In the U.S., improving manufacturing momentum and steady services growth are supportive, but weak consumer confidence and elevated policy and geopolitical uncertainty argue for a measured stance. In Canada, stable monetary policy, a still‑elevated but easing unemployment rate, and resilient resource sectors suggest a cautiously constructive backdrop, albeit with ongoing sensitivity to trade developments and commodity volatility. For diversified investors, maintaining balanced exposure across quality growth, cyclicals leveraged to a slow‑growth environment, and resilient income‑producing assets—while staying attentive to central‑bank guidance and labor‑market trends—remains a prudent way to navigate what is likely to be another active year for markets.