Inside the markets | Helping you guide clients

David Aujla narration:

Hello and welcome to the January edition of Inside the Markets — a deeper look at how global markets kicked off 2026. My name is David Aujla and I’m the lead portfolio manager for Invesco’s Summit and Managed multi asset fund ranges and its model portfolio service.

It’s fair to say that January was eventful and if it is any guide to how the rest of 2026 goes, we can say it’s almost certainly not going to be boring!

Political and geopolitical tensions were elevated almost from the off with the US action in Venezuela and civil unrest in Iran and the accompanying rhetoric from the US.

Federal prosecutors opened a criminal investigation into US Federal Reserve Chairman, Jerome Powell, which he called ‘unprecedented’ and said he believes it is related to the President's anger that the Fed had not cut rates as aggressively as desired.

And an increasingly unconventional U.S. policy backdrop continued with President Trump’s appearance at the World Economic Forum in Davos, where he re-stated a US claim on Greenland, renewed threats of sanctions on several EU economies, and questioned NATO member’s burden sharing both in financial terms (perhaps fairly) but also in terms of their contribution in places such as Afghanistan (much less fairly).

Leaders of NATO member countries pushed back strongly, and soon after President Trump softened his stance ruling out the use of force over Greenland and backing away from immediate tariff escalation.

With that kind of rhetoric and uncertainty you could perhaps be forgiven for expecting markets to be weak. In fact, despite these pressures, markets largely held up, a reminder that markets can sometimes be unpredictable in how they react to events.

This time around they largely overlooked the rhetoric and instead found support from ongoing corporate balance sheet resilience, stabilising economic and labour data, as well as gradually improving inflation dynamics.

Market performance            
For January as a whole, global equities delivered around 3% in US dollar terms, with global fixed income (GBP hedged) posting marginally positive returns of 0.2%.

For UK investors, however, the picture looked a little different. The dollar fell more than 1.5% against sterling, to almost a four-year low, and as a result, global equity returns were noticeably softer in Sterling terms, but still ending the month in positive territory, delivering a return of 1.1%.

But once again, much happened beneath the surface. January saw the so-called “rotation trade” continue to build momentum.

The rest of the world outpaced the US in terms of equity returns, even after stripping out the currency effects I just mentioned. While US equities did end the month in the green, gains were tempered by mounting worries over potential AI overinvestment, as highlighted by several late‑month corporate updates, most notably from Microsoft whose share price fell just over 10% in the last couple of days of January.

European and UK equities delivered stronger gains of around 3% in local currency terms, while Japan did better still, returning more than 4% over the month. The rally in Japan was supported by speculation over fresh fiscal stimulus and expectations that Prime Minister Takaichi would call a snap election to secure a stronger governing mandate, something she ultimately did mid-month.

Across all of those markets mentioned there was significant divergence in sector returns, with best performing sectors up double-digits and the worst in negative territory. In Europe and Japan, energy and technology stocks were up most while consumer related stocks struggled. In the UK, perhaps partly due to a different market composition, it was the materials sector that did best, perhaps not so surprising considering commodity prices.

However, looking across equity regions, emerging market equities were the standout performers, climbing an impressive 7% in Sterling terms. This is a continuation of last year’s trend where they had their best year since 2017. Their outperformance in January was supported by the same drivers - a weaker U.S. dollar and a powerful rally in commodities, to which many developing economies are closely tied.

Reflecting the rotation trade and a general broadening out of markets, value stocks outperformed growth stocks, small and mid-caps outpaced large‑caps, and even the S&P 500 equal‑weight index outperformed its market‑cap‑weighted counterpart, reflecting investors’ growing willingness to look beyond U.S. mega‑cap technology names in search of opportunities in less concentrated and arguably more attractively valued areas.

While there is no guarantee that this rotation continues, relatively attractive valuations, a highly concentrated global equity market, and resultant currency risk for a Sterling-based investor all serve as a timely reminder of the value of a globally diversified multi asset portfolio. But of course I would say that!

Turning to fixed income, returns across the board were unremarkable. The ‘riskier’ segments of the market (at least in terms of credit risk) delivered better returns than more traditionally ‘defensive’ government bonds.

Corporate credit, including investment grade, high yield, and emerging‑market debt were supported by solid corporate balance sheets, still‑attractive all‑in yields, and resilient economic growth.

In fact, January brought a series of notable economic data releases and a busy period for policymakers. In the US, data releases confirmed that the economy continued to expand at a solid pace. And while job gains remained subdued, the unemployment rate showed signs of stabilising, and the broader disinflation trend stayed intact.

A similar tone emerged internationally, with the IMF’s January 2026 World Economic Outlook Update slightly upgrading its global growth forecast to 3.3% for the year.

On the monetary‑policy front, the dominant theme across advanced economies was one of stability. Most central banks opted to keep interest rates unchanged even as markets continued to reassess the balance between inflation moderation, labour market dynamics, and geopolitical uncertainty.

Among major developed‑market central banks, the Bank of England wasn’t due to meet during January. After cutting the Bank Rate down to 3.75% in December it maintained a cautious tone — open to further easing, but intent on keeping inflation expectations anchored.

The Federal Reserve ended 2025 after multiple rate cuts and expectations of more to come, but after a few weeks of 2026 markets now seemingly expect a slower, data dependent approach.

Across emerging economies, several central banks still have room to cut further, although the pace is expected to slow as rates approach neutral and FX stability becomes more important.

The ECB is viewed as being near the end of its own rate cycle. With inflation below target and growth still fragile, policymakers are pausing to assess the impact of earlier decisions.

Japan of course remains the major outlier having hiked in December and has the potential to continue to do so. In fact, long-dated Japanese Government Bond yields reached a high not seen in decades mid-month.

Gold and silver were big stories:

In the commodity space, Gold continued to capture the imagination as it pushed above $5,000/oz at points in January while silver posted even larger percentage gains thanks to tight physical markets and strong ETF inflows. Both however experienced a very sharp pullback at the end of the month which is perhaps a reminder that while some investors see it as a way of mitigating US dollar debasement risk and long-end rates risk, there are also some momentum or FOMO driven investors in the space.

Oil prices also joined the party, with Brent Crude going from just above 60 dollars to just above 70 dollars before settling somewhere in between by month end. The escalating situation in Iran outweighed any worries about oversupply and put the spotlight firmly back on geopolitical risk and potential supply disruptions from what is OPEC’s fourth‑largest producer.

What next?

So, what next? Well, quite frankly who knows? Our job is not to predict but to prepare. And one advantage we have as multi asset investors is that we have the inherent benefit of being able to pull a few levers to build diversified portfolios that can have the potential to perform in a variety of conditions or scenarios.

Our job is to assess and determine what is likely to be noise, and what is likely to bring about fundamental change in an investment thesis. Some of the things we are looking out for are.

Non-US market leadership: Sustaining rest-of-the-world outperformance will depend on earnings delivery, policy credibility, and whether global investors begin reducing longstanding underweights.

AI concentration risk: Mega‑cap tech remains central to index performance. Any earnings disappointments or regulatory surprises could trigger broader de‑risking.

Gold vs. the dollar: Strong safe‑haven demand and low real yields could keep precious metals elevated — with knock‑on effects for FX markets, inflation expectations, and hedging strategies.

Geopolitics: The Davos situation is unlikely the last time we will hear strong and unconventional rhetoric from the US administration, and geopolitical uncertainty

Rate‑cut expectations: Any upside surprises in inflation or growth could pressure duration trades and rate‑sensitive equities. And vice versa.

The way 2026 has started is a reminder perhaps of the value of a well-diversified portfolio.

Looking forward I believe that having the tools to adapt to changing market conditions will be a must and that what you own within asset classes may be as important as how much of each asset class you own. The rotation we are seeing beneath markets is demonstrating that right now.

Thank you for taking the time to watch this month’s review. I hope you found it useful. As always please get in touch with any questions you have. See you next time!

Disclosures (not being read, only showing up on screen):

Investment risks

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

Important information

Data as at 30 January 2026.

This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication.

Views and opinions are based on current market conditions and are subject to change.