January was another positive month for SPX.  Small caps led the way.

SPX finished January in positive territory (total return) for a ninth straight month despite some modest intramonth volatility.  Some of the key drivers during January were heightened geopolitical risks in South America and the Middle East, Q4 earnings season kicking off, and continued volatility in the crypto space.  Tech lagged once again in January, but not by much.  Following a return of 0.06% in December (total return), SPX (the S&P 500) returned 1.44% (total return) in January.  After returning -0.67% (total return) in December, NDX (the Nasdaq-100) returned 1.23% (total return) in January.  The Russell 2000 returned 5.39% in December after a return of -0.58% in December.  SPX & NDX held their 200-day moving averages in January, which we will illustrate later in this note. 

High Yield, International and Real Estate were higher in January, while Bitcoin was negative.  Following a return of 0.57% in December (total return), High Yield (Bloomberg US Corporate High Yield Total Return Index) returned 0.51% (total return) in January.  Following a return of -0.23% in December (total return), the MSCI EAFE Index returned 5.24% (total return) in January.  Following a return of -2.13% in December (total return), Real Estate (Dow Jones US Real Estate Capped Index) returned 2.59% (total return) in January.  Bitcoin returned -4.15% in January (Bloomberg Bitcoin Index) after returning -4.11% in December.

In January, the FOMC kept rates unchanged after lowering its policy rate to a range of 3.50% – 3.75% in December.  Fixed income markets were mostly driven by inflation data, employment data, and expectations of future rate cuts.  Additionally, Kevin Warsh was nominated as the next Fed Chair.  Treasury yields moved higher across the curve in January, and the long-end slightly outperformed.  The 10-yr closed near 4.23% to end January, up from 4.16% at the end of December, and near the lower end of its important 4.20% – 4.50% technical range.  The 30-year Treasury yield ended January at roughly 4.87, slightly higher than 4.84% at the end of December.  Over the past several months and years, the correlation between equities and fixed income has been notably high – and likely will remain so.  Additionally, the 2/10 Treasury yield spread steepened in January.  The 2/10’s record-long inversion came to an end in the second half of 2024.

Another notable datapoint from January was the release of December’s inflation data: CPI printed 0.3% M/M, matching the consensus.  Core CPI printed 0.2% M/M, below the 0.3% consensus.  PPI printed 0.5% M/M, above the 0.2% consensus.  PCE printed 0.2%, matching the consensus.  Core PCE printed 0.2%, also matching the consensus.

The next Fed meeting will take place on 3/17-3/18, and there is no cut expected.  Looking ahead, and as of the end of January, the market is pricing in roughly 25bps for 2026 (one cut).  The Fed continues to target 2% inflation as its goal, and incoming inflation reports will likely continue to drive the dot plot.  However, the Fed has cut rates multiple times despite inflation remaining above the 2% target.  Furthermore, the weaking employment picture will continue to play a major role in future cuts.

According to FactSet, the trailing 12-month P/E ratio for SPX is 27.9 which is above the 5-year average (24.9), and above the 10-year average (23.1).  The forward 12-month P/E ratio for SPX is 21.5, which is above the 5-year average (20.0), and above the 10-year average (18.8).  Additionally, per FactSet, 76% of SPX companies have beaten EPS estimates to date for Q4, which is below the 5-year average of 78% but equal to the 10-year average of 76%.  Finally, per FactSet, 73% of SPX companies have beaten revenue estimates to date for Q4, which is above the 5-year average of 70% and above the 10-year average of 66%. 

Within commodities and currencies: WTI Crude Oil rose in January by roughly 13.50% to close near $65/bl.  Gold rose by roughly 13.30% in January and closed out the month near $5000/oz.  Finally, the USD/DXY fell M/M and closed out January near 96.50.  2025 was one of the weakest years for the USD in several decades, and 2026 started off on similar footing.

VOLATILITY UPDATE

After closing out December near 15, the VIX Index finished January near 17.50 as volatility rose M/M.   The 12-month high of the VIX Index was registered on 4/7/25 at 60.13.  In 2022, the VIX averaged over 25.  In 2023, the VIX averaged near 17.  In 2024, the VIX averaged near 15.50.  And in 2025, the VIX averaged near 19.

The MOVE Index calculates the future volatility of US Treasury yields implied by current prices of options on Treasuries of various maturities.  It is thought of as “The VIX Index of the Bond Market.“  After closing out December near 63.50, the MOVE Index closed out January near 59.  The MOVE continues to print very low numbers.  The 12-month high of the MOVE Index was registered on 4/8/25 at 139.88.  Traders will continue to monitor this index to gauge potential future bond and equity volatility.  Equities tend to favor a subdued MOVE Index – and a low MOVE Index has been the case over the past 6 months.

LOOKING AHEAD

Among other factors, the market will be adjusting to and watching employment data, recently flared geopolitical risks, US trade policy headlines, inflation, earnings, yields, and fiscal policy.  On the inflation front, January’s CPI will be released on 2/13, and January’s PPI will be released on 2/27.  Finally, the next FOMC meeting will take place on 3/17-3/18, and the market is expecting no cut.