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.

Overview

Global markets closed out 2025 with mixed performance as investors repositioned portfolios and reset expectations for 2026. In the U.S., equity markets finished December essentially flat, as gains in Financials, Technology, and Communication Services were offset by weakness in Utilities, Real Estate, and select defensive sectors. International equities outperformed, with Emerging Markets and developed markets leading returns.

In Canada, the S&P/TSX Composite posted modest gains, supported by strength in Financials and Materials as commodity prices remained relatively firm. Investor sentiment continued to be shaped by central bank policy signals, easing inflation data, labor market trends, and ongoing geopolitical and trade-related uncertainty.

U.S. Market Performance & Policy

The S&P 500 ended December little changed, capping off a volatile but strong year. Sector leadership rotated, with Financials leading the market as rate expectations stabilized and balance-sheet quality regained investor focus. Technology and Communication Services also posted gains, while Utilities and Real Estate underperformed amid rising long-term interest rates.

The Federal Reserve cut the federal funds rate by an additional 25 basis points in December, bringing the target range to 3.50% – 3.75% and totaling 75 basis points of cuts in 2025. While the Fed acknowledged easing inflation trends, policymakers signaled a more cautious stance going forward. Market expectations for further near-term cuts declined, with attention shifting toward incoming inflation and labor data ahead of the January FOMC meeting.

Key U.S. Economic Data 

• Federal Funds Rate: Reduced by 25 bps in December; policy now viewed as closer to neutral. 

• ISM Manufacturing PMI: Declined to 48.2, indicating continued contraction in manufacturing activity. 

• ISM Services PMI: Increased to 52.6, reflecting ongoing expansion in the services sector. 

• Labor Market: Payroll growth exceeded expectations, while unemployment edged higher to 4.6%. 

• Inflation: Headline and core inflation resumed their downward trend, with November readings near 2.7%. 

Canadian Market Overview 

The S&P/TSX Composite recorded modest gains in December, supported by Financials, Materials, and Industrials. Gold prices moved higher, while oil prices declined modestly, contributing to mixed performance across resource sectors. Investor interest remained focused on high-quality growth names and companies with strong balance sheets. 

The Bank of Canada held its policy rate steady, reiterating that previous rate hikes are still working through the economy. Statistics Canada data showed easing inflation and mixed domestic demand, while international investor demand for Canadian equities remained supportive of the TSX. 

Outlook 

As markets enter early 2026, the investment landscape appears to be shifting away from a rate-dominated environment toward one driven by earnings quality, sector selection, and productivity trends. While economic growth is slowing, it remains positive, and inflation continues to moderate. For diversified portfolios, maintaining exposure to quality growth, value-oriented cyclicals, and resilient income assets—while closely monitoring central bank guidance and labor market conditions—remains a disciplined approach in a more balanced but still volatile market environment.

Overview

In the U.S., major equity benchmarks were little changed in November, with the S&P 500 edging up about 0.1% as strength in healthcare and select defensive balanced weakness in technology and other prior leaders. In Canada, the S&P/TSX Composite pulled back from mid‑month records but managed to hit a new all time high in the last day of the month, supported by gains in cyclicals, energy, and materials. Across both markets, investors focused on central‑bank communication, labour trends, and late‑year inflation data to gauge how far the current easing cycle can progress.​

U.S. Market Performance & Policy

The S&P 500 finished November essentially flat at +0.13%, extending an already strong year even as leadership broadened away from mega‑cap growth. Healthcare outperformed, while large‑cap growth and the Nasdaq underperformed as investors rotated out of crowded AI‑related trades and reassessed earnings expectations.​

Sentiment turned more cautious as consumer confidence fell sharply and manufacturing data remained in contraction, even as services activity stayed in expansion territory. The Federal Reserve, having cut rates earlier in the fall, maintained a data‑dependent tone and signalled that future moves will hinge on how inflation and labour conditions evolve from here. Key releases to watch into December and January include updated CPI prints, delayed jobs data, and fresh FOMC projections that will help clarify the likely pace of any 2026 rate cuts.​

Key U.S. Economic Data

• Federal Funds Rate: Target range around 3.5%–3.75% after recent 25‑basis‑point cuts, marking a gradual shift toward easier policy.​

• Unemployment Rate: The November employment report showed only modest job gains, with mixed signals around underlying labour‑market momentum.​

• Consumer Confidence Index: The Conference Board index dropped to 88.7 in November, the lowest since April, reflecting heightened concern over income, jobs, and tariffs.​

• ISM Manufacturing Index: Manufacturing PMI remained below 50, indicating continued contraction in factory activity.​

• ISM Services Index: Services PMI stayed above 50, pointing to ongoing though moderating expansion in the larger services economy.​

Canadian Market Overview

The S&P/TSX Composite experienced increased volatility through November, trading roughly 1.2% below earlier peaks mid‑month before ultimately revisiting and surpassing prior record highs late in the period. Strength in energy, financials, and resources that had driven gains earlier in the year gave way to more mixed sector performance as investors digested softer global growth signals and shifting expectations for U.S. monetary policy.​

Labour data surprised positively: Canada added about 54,000 jobs in November, and the unemployment rate declined to 6.5%, its second consecutive monthly improvement and an encouraging sign for domestic demand. Against this backdrop, the Bank of Canada kept its policy rate at 2.25% in December, reinforcing October’s message that policy is now close to neutral and that further moves will depend on incoming inflation and growth data. With inflation moderating and growth steady but unspectacular, markets interpreted this stance as supportive for risk assets without signalling an imminent acceleration in easing.​

Key Canadian indicators to monitor into year‑end include headline and core CPI, additional labour‑market releases, and business sentiment surveys, all of which will shape expectations for any further Bank of Canada action in the first half of 2026.​

Outlook

Heading into December, both U.S. and Canadian markets face a familiar trade‑off: easier monetary policy and still‑healthy employment versus weakening confidence and patchy manufacturing data. For long‑term investors, the focus remains on whether inflation can continue to cool without a material deterioration in labour conditions, and how sensitive equity valuations are to any downside surprise in growth or geopolitics.​