February 2, 2026

“All successful investment involves trying to get into something where
it’s worth more than you’re paying.”

Charlie Munger

Well January finished down a bit in the last few days, but overall, a good month for the markets up 1-2% depending on the market. Here are the numbers from last week. The S&P 500 was up slightly .23%, the Dow Jones Industrial Average fell .50%, Nasdaq lost a little .29%. Internationally, the FTSE 100 was a winner, up .79%, and the MSCI-EAFE finished up .50%. The 2-Year Treasury paid 3.524% and the 10-Year yield was 4.241%.

Historically when January is a positive month so goes the market in the following year. It was, however, a rollercoaster start to the year for U.S. equities. A sell-off in Japanese government bonds coupled with tariff-related tensions on January 20th contributed to the S&P 500’s worst single day drop since October 2025. Still, the market marched upwards, with the 500 hitting all-time highs and closing the month up 1%, despite a pullback during the final two trading days of the month. Disappointing reactions to Big Tech earnings, fresh inflation jitters and concerns over the announcement of the new Federal Reserve chair put a damper on sentiment.  Fueled by robust economic data and strong earnings, the rally broadened beyond large caps, with the S&P Midcap 400 and S&P SmallCap 600 advancing 4% and 6%, respectively.  Most large-cap sectors finished higher, led by a rotation toward Energy and Materials, up 14% and 9%, respectively. Most of the reported factor indices posted gains. In another sign of a market rotation, dividend strategies led, Value outperformed Growth, and Momentum lagged. Fixed income indices also performed well across the credit spectrum. Commodities ended January on a high note, with the S&P GSCI Energy and S&P GSCI Precious Metals up 17% and 9%, respectively. A weaker dollar accompanied by safe haven demand led to multiple new highs for gold and silver, followed by a sharp slide downwards for the metals on the final trading day of the month.

Last week, U.S. markets opened with investors digesting hotter producer inflation and fresh uncertainty at the Fed. Producer prices rose 0.5% in December, the biggest monthly gain in three months, keeping services inflation and the interest-rate outlook in focus. Corporate signals were mixed. Exxon Mobil beat expectations on strong fourth-quarter results, helped by Permian and Guyana production, lifting energy names. Meanwhile, the technology story is widening beyond generative software into Physical AI, the hardware and robotics that bring AI into the real world. Taiwan’s 8.6% growth in 2025 underscored strong chip demand, even as leadership rotated and NVIDIA slipped amid heavy activity.

Commodities moved with the macro backdrop. Gold and Silver set fresh records earlier this week as consumer demand surged, Then took a dive at the end of last week thwarting it on going march to record prices.  Crude oil edged higher, keeping markets sensitive to inflation and growth cues as traders reassess risk and valuations. With the incoming fiscal stimulus, when combined with an ongoing (though slowing) Fed easing cycle, declining energy costs, and significant potential for sentiment improvement, represents a nontrivial level of support to equity markets. Optimism is tempered by concerns regarding the labor market, weakness within housing, and the possibility of renewed inflationary pressure.

Going forward, we will maintain a modest equity overweight, expressed through diversified exposure designed to benefit from improving market breadth (move toward value over growth). Some balance with high-quality fixed income, provide some downside protection, but the intermediate bond yields are becoming more attractive. Internationally, The S&P Europe 350® started 2026 on the front foot, rising 3% to start the year. Gains were similar across the cap spectrum, with mid and small caps posting returns within 1% of their large cap peers. All reported factor indices were in the black in January. In the bond market, corporates and sovereigns both saw modest gains. Inflation-linked instruments were the strongest performers.

On the Fed watch, as expected, the Fed left the policy rate unchanged in a 3.5%-3.75% range at yesterday’s FOMC meeting, describing the economy more favorably than in December, and noting signs of stabilization in the labor market. Two voters dissented in favor of a rate cut, but Powell emphasized that there was broad support among other FOMC participants (including non-voters), to leave the policy rate unchanged. The markets barely moved on the Fed news, and the futures market is still pricing in two rate cuts by the end of this year. But much will depend on who is running the Fed later this year.

To that point, the biggest news in markets last Friday was President Trump picking Kevin Warsh as his nominee to chair the Federal Reserve. But though that captured headlines, stocks seemed to shrug off the news. Kevin Warsh has an impressive resume and seems to outmaneuver several favorite candidates for the job. Warsh, a former Fed governor who has become a prominent critic of the central bank, would take over at a moment when Trump has repeatedly pressed the Fed to cut interest rates faster.  Warsh served on the Fed’s Board of Governors from 2006 to 2011 and worked closely with then-Chair Ben Bernanke during the 2008-09 financial crisis. He later resigned years before his term would have ended. He has since stepped up his public criticism of the Fed, including calls for “regime change” and an overhaul of the framework that guides how the central bank sets rates. In his announcement, Trump highlighted Warsh’s current roles at Stanford and the Hoover Institution, saying Warsh is the Shepard Family Distinguished Visiting Fellow in Economics at Hoover and a lecturer at Stanford’s Graduate School of Business. Trump also said Warsh is a partner of Stanley Druckenmiller at Duquesne Family Office LLC.

Warsh previously worked in mergers and acquisitions at Morgan Stanley and served in the George W. Bush White House from 2002 to 2006 as a top economic policy aide and executive secretary of the National Economic Council, according to Trump’s post. The nomination now goes to the Senate, where the confirmation process has been complicated by a Justice Department probe involving the central bank. Wall Street generally views the nomination as positive.

Mike