The S&P 500 finished a headline-heavy January with a gain for the month, while the headlines finished with a flourish. President Trump announced Friday that he planned to nominate Kevin Warsh to be the next chair of the Federal Reserve (Fed). While Warsh will in all likelihood fight for cuts while Trump is president, historically he has been quite hawkish, with a bias toward keeping rates higher to help fight inflation. While the reaction from stocks and bonds was generally muted, the news rocked the metals complex, with silver finishing down 31% Friday and gold down more than 11%. But note, both are still up more than double digits for the year even after Friday’s historic declines.
It is all very early, but we’ve said the one thing that could stop the bull market in gold and silver would be a hawkish Fed, although part of the reaction was likely also that precious metals had moved too far too fast and markets were ripe for a recalibration, even if not a lot has changed structurally. We will have more thoughts on Warsh at the Fed over the coming months, but for now, we do still anticipate some cuts later this year, but future cuts going out could be harder now.
So Goes January, So Goes the Year
An effect widely known as the January Barometer looks at how the S&P 500 does in January and what it may mean for the next 11 months. The effect has given us the saying, “So goes January, goes the year.” The late Yale Hirsch first presented the phenomenon in Almanac Trader 1972, work now carried on by his son Jeff.
Let’s look at the January Barometer. For starters, four years ago, in 2022, we saw the S&P 500 lower in January, and it was followed by a vicious bear market. Then the past three years, stocks were higher in January each time and we’ve seen 15%+ gains three years in a row for the first time since the late 1990s.
Historically speaking, when the first month was positive for the S&P 500, the rest of the year was up 12.2% on average and higher 87.0% of the time. And when that first month was lower? The index was up about 2.1% on average the rest of the year and higher only 60% of the time. Compare this with your average year’s final 11 months, up an average of 8.2% and higher 76.3% of the time, and clearly the solid start to 2026 could be a positive for the bulls.
Here’s another way of showing what tends to happen the rest of the year based on what happens in January. Historically, if January is higher, the S&P 500 has gained an average of 16.9% for the full year, with an overall upward bias most of the year. But when January has been lower, the full year has struggled and is down on average. We know markets tend to trend, and that first month has often picked the direction for the full year.
In the end, the S&P 500 did see gains this January, but they were fairly modest, although that might be a good sign. Below, we show all the times the first month of a new year gained 0% to 2%, and you can see that continued strength is perfectly normal, as stocks have only been lower the final 11 months once in history.
Overall, there are many things to watch, and we don’t blindly invest only in how January does, but we think this is yet another clue this bull market is alive and well. Now, take note that February historically has been a weak month with a good deal of volatility. We will discuss that more next week, but we remain optimistic 2026 will be a better-than-average year for investors.
New Year, Same Principal: Diversification
2026 is off and running, with an action-packed January and a further reminder that the oldest trick in the investing book still applies. That “trick” is, of course, diversification, which helped add resiliency to portfolios in 2025 with strength in areas like international stocks and commodities, and 2026 has extended that theme, although with some old trends fading and some new trends emerging. International stocks have continued to fare well to start 2026 but, at least early, technology-oriented stocks as a group have faded. Commodities—previously powered by precious metals—have expanded to include industrial metals, oil, natural gas, and now even grains. Emerging markets, where many countries are closely tied to the price of commodities, have continued their run from last year as well. We have been skeptical of Chinese market returns within emerging markets, and we have already seen Chinese stocks turn into a laggard within the very diverse emerging market asset class. Small caps are the other standout so far this year. An asset class that historically has had a “January Effect” (a tendency to perform well in January) is proving that again this year.
It has only been one month, but market action so far has important implications for portfolios. Commodities, emerging markets, and small caps stocks are traditionally small pieces of most portfolios today, if they are present at all. And while we include commodities in many portfolios, they are not explicitly in our benchmarks (or many others out there).
The run for large cap US stocks, particularly growth-style stocks, has likely led portfolios to be overweight in the largest names in the market. Many of these large-growth names are strong companies that have reshaped the world in many ways, but with strong historical returns and expensive valuations come higher expectations going forward. Just this week we saw this with Microsoft, currently the third largest company in the world by market cap, which beat estimates for earnings and revenues but missed on certain spending metrics, sending shares plunging more than 10%—the equivalent of the market value of Netflix!
Fixed income, which we defined as the broad aggregate bond market, and cash (short-term Treasury bills) have had a slow start to the year, but that is part of the experience for these assets. We expect the yield for fixed income to be the largest driver of returns going forward, not capital appreciation potential like we saw for a decade following the Great Financial Crisis (or capital losses, like 2022). So far in January, we only have 1/12th of the expected yield of a fixed-income portfolio for the year. High-quality fixed income continues to be an important part of a diversified portfolio, but as we have mentioned in the past, considering other diversifiers can potentially help add resiliency.
Uncertainty is always a part of investing, and the year to come will undoubtedly present more challenges to investors, like every year does. It is important to remember the mantra: When in doubt, diversify it out.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
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The views stated in this letter are not necessarily the opinion of Cetera Wealth Services LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.
A diversified portfolio does not assure a profit or protect against loss in a declining market.
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