Tenth Avenue Freeze Out
Bruce Springsteen
Tenth Avenue Freeze-Out

I’m gonna sit back right easy and laugh /

When Scooter and the Big Man bust this city in half /

With the Tenth Avenue freeze-out

January is often considered the bellwether month for the U.S. stock market. If the S&P 500 is up in January, it signals a good year is ahead. The data supports this expectation – more than 80% of the time, the S&P 500 has been up for the year when the January return has been positive. This is known as the January Effect. Unfortunately, the statistical significance of the January Effect is not as strong as some make it seem. In the years when the January performance is negative, the full year results are positive about 50% of the time. And, across all years, the S&P 500 has delivered positive returns more than two-thirds of the years. So, the January Effect may be similar to the Super Bowl Indicator – a good story but one that requires a deeper look into the numbers.

One of the more notable things that occurred this January (sorry, not the losingest college football team winning the National Championship) was the arctic blast that swept through much of the U.S. It brought record-setting cold temperatures and snow to places that typically are refuges for people fleeing winter. Many people became “armchair” forecasters, looking at charts and computer models to determine the path of the next storm or cold front. Their predictions were often no better than the professionals. Similarly, market forecasters have tried to interpret the data and predict how the rest of 2026 will unfold. They have the data to support the expectation of a positive year but should know that a lot can happen between now and the end of the year that can test their hypothesis.

From a market perspective, January was just as wild as the weather. Yes, the S&P 500 return was positive and gives hope to investors seeking a fourth consecutive positive year for the index. However, the S&P trailed most market segments in the U.S. and abroad in the month. Going deeper into the numbers shows that value outperformed growth by 3% in small caps to more than 6% in large caps. Across regions, MSCI EAFE outpaced the S&P 500 by almost 4% while MSCI Emerging Markets beat it by more than 7%. Interestingly, the best performing market sectors in the U.S. were Energy, Materials and Staples while the weakest were Financials and Technology. Seeing more breadth and depth should be good for markets, signaling that the dominance of the narrow AI theme may be lessening and other parts of the economy are showing signs of strength. As questions about the weakening U.S. dollar and geopolitical shifts arose, precious metals experienced elevated levels of volatility with gold and silver rising sharply until the last two days of the month when they sold off sharply. Similarly, natural gas and heating oil prices jumped in response to the winter storms and frigid temperatures before coming down at month end.

Bonds were the steadiest asset class with the Bloomberg Aggregate index posting a return of 0.1% for the month with little volatility.

Here are observations on what occurred across the investment markets in January:

Broad Market Performance¹

Domestic Equity²

• U.S. equity market returns were largely positive, driven primarily by stronger corporate earnings growth across multiple sectors less tied to the big AI themes.
• Value stocks continued to outperform growth across market caps. Small cap stocks handily outperformed large caps and the equal weighted S&P 500 beat the cap weighted S&P 500 by 2%, highlighting greater market breadth.

International and Global Equities³

• Non-U.S. developed market stocks once again beat U.S. equities. Japanese stocks were among the best performers within MSCI EAFE, reflecting an active period for its currency and bond markets.
• Emerging market stocks outperformed developed markets, supported by Korean and Taiwanese tech stocks and the mining and materials sectors. Chinese stocks rebounded, adding 5% in the month after being down (-7%) in Q4 2025.

Fixed Income Markets⁴

• U.S. bond market returns were barely positive as interest rates moved less than 8bps across the yield curve during the month. Credit spreads remain very tight.

Specialty Markets⁵

• Precious metals (gold and silver) spiked before falling sharply at month end. Natural gas prices fluctuated with the changing weather conditions.

Sectors⁶

• 8 of 11 sectors were positive in the month, led by Energy (14%), Materials (9%), and Staples (8%). Financials (-2%) and Technology (-2%) were the laggards.

Aside from the January Effect, there are reasons for investors to be optimistic about 2026. While the AI theme may have lessened for the Mag 7, it is showing up across more sectors that are supporting the AI buildout or are benefitting from new AI efficiencies. More market

breadth is typically a good signal for markets, particularly late in a cycle. Lastly, the U.S. economy, despite some signs of softening, still is growing, highlighted by good Q4 earnings reports.

Offsetting some of the optimism should be an awareness that this market rally is entering a fourth year with stretched valuations. Also, with inflation remaining above target and employment data softening, the Fed will be challenged to push through more rate cuts in the near term. The recent strong performance of non-U.S. markets reinforces the benefits of maintaining a diversified portfolio that is exposed to multiple market segments and is not tied to one theme.

While the January Effect may prove to be a positive predictor, investors are better off relying on a well-designed financial plan with a diversified investment portfolio to weather any storms, winter or otherwise. “I’m gonna sit back right easy and laugh…. with the Tenth Avenue freeze-out”

^1-6 All data referenced in the table and comments supplied by Morningstar as of 01-31-2026

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