Market Snapshot
By the Numbers
- The S&P 500 gained 1.4% in January and briefly crossed 7,000 for the first time on an intra-day basis. The Nasdaq Composite rose 0.9% and the Dow Jones Industrial Average gained 1.7%.
- The Bloomberg U.S. Aggregate Bond Index climbed 0.1% over the month as long-term interest rates rose. The 10-year Treasury yield ended the month at 4.24%, the highest level since last September.
- International developed markets jumped 5.2% in U.S. dollar terms based on the MSCI EAFE Index, while emerging markets gained 8.8% based on the MSCI EM Index.
- Kevin Warsh was nominated to replace Jerome Powell as the next Fed Chair. If confirmed by the Senate, he would take office in mid-May.
- The U.S. dollar index fell further to about 97.0, reaching its weakest level in nearly four years, before rebounding slightly following the Fed Chair news.
- The Federal Reserve held its policy rate at 3.50 to 3.75% at its January meeting, following three consecutive quarter-point cuts in the second half of 2025.
- Consumer Price Index inflation remained at 2.7% year-over-year in December, still above the Fed’s 2% target. The Producer Price Index accelerated to 3.0%.
Federal Reserve Update
Given the maelstrom of headlines in January investors would be forgiven for missing the news of Kevin Warsh’s nomination to replace Jerome Powell as the Federal Reserve Chair. Concerns about the independence of the Fed have grown, both domestically and internationally, partially reflected in the large jumps in prices of gold and silver.
The moves driving gold and silver have been referred to as the “debasement trade,” or the idea that fiscal and monetary policies that effectively weaken the dollar, create deficits, and lead to inflation may strengthen precious metals. Fed uncertainty, including whether a new Fed chair might push interest rates lower, has driven these metals higher.
Warsh is a former Fed governor who has recently stated that he prefers lower interest rates. However, he has also been hawkish in the past, meaning he has advocated for keeping rates higher to prevent inflation. For investors, this shifted expectations since it suggests there may be a smoother transition between Fed Chairs. This led to a plunge in both gold and silver, with the dollar rising slightly.
We are cautiously optimistic for smooth transition and remain staunch advocates of an independent Federal Reserve.
Corporate Earnings Remain Strong
Beyond the main global headlines, the fourth quarter earnings showed that companies continue to perform well. According to FactSet, 33% of S&P 500 companies have reported results and 75% have beaten expectations. If these trends continue, large public companies could be on track to achieving the 5th consecutive quarter of double-digit earnings growth. On a trailing 12-month basis, earnings growth has accelerated to 12.8% according to consensus estimates.
Naturally, many investors are focused on AI and technology earnings since these stocks have contributed to market returns over the past several years. So far, markets have had mixed reactions to the earnings of these companies, even when they beat estimates, due to lofty expectations and questions around the sustainability of this spending. At the same time, many other sectors have benefited from broad economic growth and have grown their earnings at a faster rate as well.
For long-term investors, the underlying message from earnings season is positive. Corporate profitability remains strong across many sectors, supporting stock valuations. This fundamental strength is one reason major indices remained positive for the month despite considerable volatility.
Chart of the Month: Healthy Corporate Earnings
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The market indices discussed are unmanaged. Investors cannot directly invest in unmanaged indices.
The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The market index is unmanaged.
The NASDAQ Composite Index is an unmanaged, market-weighted index of all over the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.
The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
Data sources: Clearnomics, YCharts, The Wall Street Journal, Charles Schwab Asset Management, JPMorgan, Bloomberg, U.S. Energy Information Administration, U.S. Bureau of Statistics, The Economist, Congressional Budget Office, US Treasury Department, & US Federal Reserve.