The year 2026 began with another strong month for global equity markets: the MSCI All Country World Equity index returned 3% in January (in USD) - a ninth monthly gain in the past 10 months. The US dollar weakened further against all other G10 currencies during the month, adding to strong returns in the emerging markets – the MSCI Emerging Markets index outperformed for the month the developed markets MSCI World index by 6.6% (in USD)! Leadership continued to move beyond the "Magnificent 7" stocks as small cap and cyclical stocks were favored. US equities posted gains in January but lagged many international markets, reflecting a move away from the concentrated leadership of large tech firms. The S&P 500 and the widely watched Mag7 stocks rose just 1%, while small-cap stocks outperformed with a 5% gain. Cyclical sectors and value stocks led the US rally, contrasting the previous dominance of growth and technology shares. Robust earnings, with fourth-quarter results beating consensus by 9%, supported the market, but consumer confidence hit multi-year lows and inflation expectations rose. Additionally, news of large-scale layoffs in major firms tempered enthusiasm, and the Federal Reserve (Fed) maintained interest rates, signaling caution amid mixed economic data. European markets enjoyed a strong month, climbing nearly 5% and achieving fresh all-time highs in many countries. The Netherlands and Norway led with double-digit returns, partly due to strategic fiscal reforms and increased defense spending. Although Germany lagged, impacted by weak growth and subdued earnings, the UK market was buoyant with signs of improving inflation and labor productivity. Across Europe, growth stocks outperformed value, bucking recent trends, while mid-cap indices like the FTSE250 and MDAX also delivered handsome results. The overall European rally was propelled by positive earnings momentum and a broad-based investor shift toward diversification outside the US tech sector. Commodities, especially gold and energy, also surged, while bond markets struggled. In January. Global bonds faced challenges from improved investor risk appetite, stronger economic data, and country-specific issues. US short-term interest rates rose as expectations for a Fed rate cut were delayed, while Japanese long-term bonds suffered their worst annual start since 1994 due to fiscal worries. Overall, the Global Aggregate bond index saw minimal gains, rising just about 1% for the month (in USD), indicating bonds added little to portfolio performance. Tensions did ease after the Davos gatherings, but still, many assets sensitive to geopolitical risk reacted noticeably: gold rose 13% in January and European defence companies jumped 18%. However, despite all US actions on Venezuela, Iran and Greenland, bond markets remained relatively calm. In summary, January’s equity rally globally was driven by strong earnings and increased investor risk appetite rather than valuation changes. The US and European equity markets highlighted the benefits of diversification, with a notable shift toward smaller caps and cyclicals, even as economic and geopolitical uncertainty persisted.
US stocks, as represented by the S&P 500 index, gained 1.5% in January 2026, ending the month with a remarkable rally. On January 28, it crossed the 7,000-point mark for the first time, a milestone achieved just 14 months after reaching 6,000. This was fueled by enthusiasm for artificial intelligence, strong earnings from major tech companies, and expectations of future monetary easing by the Federal Reserve (Fed). However, gains were narrowly focused and volatility increased, notably during a sharp sell-off prompted by renewed tariff threats. At its January meeting, the Fed kept its benchmark rate unchanged (at 3.50%-3.75%), but markets continued to anticipate cuts later in the year. Investor sentiment was shaped by concerns over the Fed’s independence and signs of slowing economic activity, including weaker consumer spending and manufacturing output. Sector-wise, Financials performed best, boosted by expectations that lower rates could support loan growth. Industrials, Consumer discretionary, and Materials also posted gains, reflecting moderate economic resilience and positive earnings. Despite strong results from mega-cap tech firms, the Technology sector declined slightly amid worries about high valuations and tariff impacts. Utilities, Healthcare, and Consumer staples fell as investors favored higher-yielding and growth-sensitive sectors. Consumer confidence dropped to levels last seen in 2014, inflation expectations rose, and several major companies announced layoffs. On January 30, President Trump nominated Kevin Warsh to succeed Jerome Powell as Fed Chair. Warsh is seen as a market-friendly candidate, supportive of lower rates and the Fed’s balance sheet reduction. Warsh’s nomination caused gold and silver prices to plunge precipitously from all-time highs, though both metals remained well above their year-end closes, highlighting their extreme volatility. Global trade tensions eased, with tariff threats retracted and a notable reduction in US tariffs on Indian goods. The US unemployment rate fell to 4.4% even though non-farm payrolls missed expectations. Quarterly earnings were robust, exceeding consensus by 9% and showing blended annual growth of 11.5%. US Treasuries experienced negative returns, mainly with selling focused on short-term bonds, as positive economic data delayed expectations for the next Fed rate cut and pushed two-year yields up by 5 basis points. Longer-term yields also rose due to persistent concerns about the Fed's ability to control inflation. The US dollar weakened by 1% against the euro during January. Despite the ongoing trade war, US economic growth remains robust, while inflation seems to have peaked and is expected to continue decreasing. For the month US yields moved higher, especially in shorter maturities (yields move opposite to bond prices).
European markets rose nearly 5% on aggregate in January as many national markets achieved new all-time highs. Every market posted a positive return for the month, led by double-digit gains in the Netherlands and Norway. During the first month of 2026, a combination of geopolitical tensions—particularly in Venezuela, Iran, and Russia—and an unusually cold winter drove energy prices sharply higher. Oil climbed 15% for the month, while European natural gas surged by 43% as demand spiked and EU reserves were quickly depleted. Meanwhile, in the euro area, inflation eased from 2.0% to 1.7% in January, largely reflecting the drop in energy prices over a year ago, though food costs went up and core inflation moderated on the back of weaker services price growth. Economic activity in the euro area surpassed expectations, with real GDP expanding by 0.3% quarter-on-quarter in the fourth quarter of 2025; Spain and Portugal stood out for their robust performances, while Ireland was the only major economy to contract. The labour market remained resilient, with the unemployment rate falling to a record low of 6.2%. Financial markets reflected these developments. Eurozone shares advanced in January, led by strong performances in Information technology — along with Energy and Utilities, while Consumer discretionary and Real estate stocks lagged. Defense-related equities benefited from increased European defense spending. January was also marked by notable geopolitical turbulence, including market jitters after President Trump suggested the US might acquire Greenland, which prompted mid-month pressures on eurozone shares. In the United Kingdom, equity markets posted gains, especially in Materials, buoyed by rising metals prices and the ongoing geopolitical concerns. The FTSE100, representing the largest UK companies, trailed the midcap-focused FTSE250, but both ended January in positive territory. UK GDP grew 0.3% in November, as labor productivity showed signs of revival, while annual inflation appeared to plateau (CPI stood at 3.4% as of December 2025). The European Central Bank held its policy rates steady and is expected to maintain this stance through 2027, with inflation running just below the 2% target. Other notable developments included India’s new trade deal with the EU, which reduced tariffs on various industrial goods, and stronger-than-expected industrial output in both Germany and the US. German fiscal data revealed a notable increase in government spending, but the country’s annual growth and corporate earnings remained subdued. On the fixed income markets, French and Italian government bonds outperformed most other markets, delivering returns of 1% and 0.7%, respectively. This strong performance was driven by increased risk appetite and reduced country-specific risks, which made these bonds attractive for their yield. Eurozone government bonds overall outperformed U.S. counterparts, supported by resilient economic activity despite all the geopolitical issues. French bond markets benefited as spreads over German bonds tightened to mid-2024 levels, aided by Premier Sebastien Lecornu’s bypassing a parliamentary vote to enforce the 2026 budget. This maneuver, combined with the reduced political uncertainty, reassured investors despite France’s still-high 5% budget deficit. In the UK, yields on short-term government bonds fell while long-term yields rose.
In the first days of trading with the new currency in Bulgaria, the Bulgarian Stock Exchange (BSE) shot up hugely. The momentum was lost towards the middle of the month, but it was still enough for all indices on the local exchange to record double-digit gains. The broad BGBX40 index ended January nearly 14% higher, the flagship SOFIX was up by 19%, and even the small-cap index, beamX, went up more than 13% for the month! Among the notable monthly news was the launch of the sixth season of the BSE's accelerator program for small and start-up businesses, beamUp Lab, in collaboration with the so-called Fund of Funds. On a separate note, an important first step towards improving operational efficiency of the local capital market was the holding of the first National Forum for the Transition to T+1 Settlement Procedure. So, among the local blue chips, the only company that retreated for the month was the financial Elana Agrocredit AD., whose share price dropped marginally by 0.4%, while the biggest growth was recorded by the commercial bank Central Cooperative Bank AD, which soared by a tremendous 90% in January!

Source: Bloomberg, BSE