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January 2026 Market Summary

Global Market Overview

Unsurprisingly, it has been a busy start to 2026 for the financial markets. In the US, threats made to Greenland, the capturing of the Venezuelan President, and the nomination of a new Federal Reserve chair caused stock market volatility. Overall, however, investors have been able to see through the noise, with markets up through January 2026 and over the past year.

Global Indices (12 months to 30 January 2026)

  • FTSE 100: +18.09%
  • S&P 500: +14.79%
  • Europe’s STOXX 600: +13.41%
  • Japan’s Nikkei 225: +34.95%

UK insights

UK payroll data for December 2025 showed a fall of 184,000 employees compared to December 2024, with a monthly decline of 43,000. The largest decreases were observed in the wholesale and retail sectors, highlighting ongoing pressures in consumer-facing industries.

CPI inflation rose to 3.4% in December, up from 3.2% in November, marking the first increase in five months. This rise was largely driven by temporary, one-off factors, including higher airfares, food and tobacco costs.

Despite this spike, the increase is expected to be transitory. Looking ahead, lower energy bills from April combined with falling fuel and food prices should help bring inflation back toward the Bank of England’s 2% target by the summer.

The Bank of England’s Monetary Policy Committee is scheduled to meet on 5 February 2026, with market expectations indicating that interest rates are likely to be held at 3.75%. The BoE’s stance remains cautious, balancing the temporary inflation uptick against broader signs of a slowing labour market.

Other economic developments

USA

Stocks in the US had a mixed January, with the S&P 500 returning just over 1% for the month. Tariff concerns and escalating tensions around Greenland caused a sell-off on 20 January.

However, President Trump’s speech to the World Economic Forum on 21 January helped to ease investor fears of military action in Greenland, allowing markets to recover and post positive returns for the month.

Following a rate cut in December by the Federal Reserve, the Fed began 2026 by leaving rates unchanged in January, as expected. After the Fed struggled with a lack of data during the latter stages of 2025, following a record-long government shutdown, December CPI figures in the United States showed year-on-year inflation at 2.7%.

This marked an improvement from September, when inflation stood at 3%, and brought it closer to the Fed’s 2% target, potentially supporting further rate cuts in 2026.

However, following a contentious relationship after President Trump’s return to the White House, Federal Reserve Chair Jerome Powell’s term is set to end in May, after President Trump nominated Kevin Warsh for the role. Warsh will need to undergo Senate confirmation before being formally appointed.

Asia

In China, factory activity grew at its fastest pace since October 2025, according to a private survey that beat expectations. PMI rose from 50.1 in December 2025 to 50.3 in January 2026, signalling continued expansion, with new orders rising for an eighth consecutive month and exports recovering.

However, business confidence fell to a nine-month low as firms grew concerned about rising input costs, particularly on metals. China recorded a trade surplus of $1.2 trillion in 2025, supported by strong export growth and shrugging off the decline in shipments to the US amid tariff concerns.

In Japan, the Nikkei 225 posted a positive return for investors in January, continuing the country’s trend of stock market growth. At the same time, to capitalise on her strong approval ratings, Prime Minister Takaichi called a snap election for 8 February. The election aims to increase the number of seats held by the current coalition government, of which Takaichi is part.

Europe

Eurozone business activity continued to show modest expansion at the start of 2026, with the latest flash PMI data pointing to steady growth in private sector output. The HCOB Flash Eurozone Composite PMI Output Index remained at 51.5 in January, unchanged from December and comfortably above the 50 mark that separates expansion from contraction, marking the 13th consecutive month of growth. New orders rose again, supporting the activity backdrop, and business optimism hit a 20 month high, reflecting stronger sentiment among firms despite broader headwinds.

Looking ahead, Eurozone companies are increasingly optimistic about output over the coming year, suggesting the potential for accelerating growth. Overall optimism reached its highest level since May 2024, with the service sector hitting a 20-month high and manufacturing approaching a four-year peak.

At the country level, future output expectations in Germany climbed to their highest since February 2022, while in France they reached a 16-month high, buoyed largely by improved sentiment in the service sector. However, optimism eased in other parts of the eurozone, falling to a five-month low, highlighting a mixed outlook across the region.

Outlook

As always, January 2026 has shown the importance of remaining diversified, and investors will have benefitted from staying invested over the past 12 months, despite the volatility. Looking forward, investors will be paying close attention to the impact of the election results in Japan, the escalating narrative surrounding Greenland, and whether further rate cuts in the UK and US will be possible.

References

BBC News (2026) Fact Checking Trump’s Davos Speech 16/01/2026. Available at: https://www.bbc.co.uk/news/articles/c301jgd1qj6o (Accessed: 2 February 2026).

ICAEW (2026) Economic update: why the UK economy is sending red herring signals, ICAEW. Available at: https://www.icaew.com/insights/viewpoints-on-the-news/2026/jan-2026/economic-update-why-the-uk-economy-is-sending-red-herring-signals (Accessed: 29 January 2026).

James Hambro & Partners LLP (2026) Weekly Market Update 16/01/2026. Available at: https://www.jameshambro.com/january-2026-investment-update/ (Accessed: 2 February 2026).

JPMorgan (2026) Fed meeting January 2026: economy insights. Available at: https://www.jpmorgan.com/insights/markets-and-economy/economy/fed-meeting-january-2026#:~:text=Key%20takeaways,one%20rate%20cut%20in%202026 (Accessed: 2 February 2026).

MoneyWeek (2026) UK inflation live: Inflation rose to 3.4% in December, MoneyWeek. Available at: https://moneyweek.com/economy/news/live/inflation-cpi-december-2025-report (Accessed: 29 January 2026).

S&P Global Market Intelligence (2026) Eurozone flash PMI sees steady growth and resurgent optimism at start of 2026, S&P Global. Available at: https://www.spglobal.com/marketintelligence/en/mi/research-analysis/eurozone-flash-pmi-sees-steady-growth-and-resurgent-optimism-at-start-of-2026-jan26.html (Accessed: 29 January 2026).

T. Rowe Price (2026) Weekly Market Recap, T. Rowe Price. Available at: https://www.troweprice.com/financial-intermediary/uk/en/lp/global-equities/weekly-market-recap.html (Accessed: 29 January 2026).

The Independent (2026) Japan’s snap election: who’s running, what they stand for, and what’s at stake, 30 January. Available at: https://www.independent.co.uk/asia/japan/japan-elections-2026-voting-when-sanae-takaichi-ldp-b2909925.html (Accessed: 2 February 2026).

This article is intended for information only. It is not financial advice or a recommendation and should not be considered as such. If you are unsure whether an investment is right for you, please seek independent financial advice. If you choose to invest, please remember the value of investments and any income derived from them can fall as well as rise and you may get back less than you put in.