Markets begin the year on firm ground
Equities were up in January, continuing to shrug off negative news and valuation concerns. Market gains were broad-based with solid performance across sectors.

The CBOE Volatility Index (VIX) closed at 16.4, well below the 20 level generally considered stable. While volatility may increase as the year progresses, we expect it to remain within an acceptable range. Markets can continue to perform well even in higher-volatility environments.

The Federal Reserve did not cut rates at its Jan. 28 meeting. The current federal funds rate stands at 3.5%-3.75%. Two additional rate cuts are expected in 2026, depending on inflation trends and the strength of labor markets.

Earnings update
Market returns in 2025 were driven by strong earnings growth, and this trend will likely continue. Estimates for 2026 call for 13% growth in the first quarter and 15% for the full calendar year. Like last year, investments in emerging Al technologies could be a key driver. There is ongoing concern about a “K-shaped” economy, in which higher-income consumers perform well and support economic growth, while lower-income consumers face pressure from elevated price levels. This imbalance could weigh on markets over time.

Looking ahead
We anticipate continued market strength in 2026, albeit at a more moderate pace. Consensus estimates project market returns at 10%-12%, a solid range as the year begins. We also expect periodic concerns around equity valuations and additional volatility typically associated with midterm elections.

Investment opportunities remain across a broad spectrum, including private equity and credit, venture growth, technology, and dividend-oriented names for risk-averse investors. Current market valuation stands at 22.2 times forward earnings. Leading U.S. companies are well-managed, profitable, and innovative. The broader economy remains relatively strong, supporting a positive long-term outlook.