Clime Economic and Financial Summary – end Jan 2026

January is traditionally a good month for risk assets, and usually not much happens to upset financial markets. This last month was different. Although most share markets ended January slightly ahead, there was significantly more volatility than usual, especially at month end. Volatility was a theme across technology stocks, commodity markets, bonds and currencies – and yet while some individual shares were pummelled, particularly amongst mega-cap tech, the indices ended the month still close to all-time highs.

In the US, the S&P 500 rose ~1.45% over January, the Dow Jones was up ~1.6%, and the Nasdaq was ~0.95% higher. Most European indices were up as well, except for France (-0.28%) which is battling with a weakened political administration, while Japanese indices were up 5-6% and Chinese indices were up 3-4%. In Australia, the ASX 200 rose 1.8%.

As expected, President Trump stole the media limelight. Not only did he capture and arrest the President of Venezuela and seize the country’s oil, but he also threatened to take Greenland from Denmark, announced further tariff hikes, stepped up ICE deportations and created mayhem on the streets of Minneapolis. Trump has also sent a naval armada to the Persian Gulf, and is pressuring the Iranian leadership to “do a deal”. A lot of noise and fury, but not enough to substantially affect US corporate earnings.

Australian inflation continued to rise further above the RBA’s target 2-3% range. At the time of writing in early February, we note that the official cash rate was increased by 25 basis points to 3.85% on 3 February, and the market expects further rate rises are more than likely later in the year.

US inflation also remains above the Federal Reserve’s 2% target, but the Fed kept rates flat in its January meeting despite mounting political pressure. Trump announced Kevin Warsh as the new Fed Chair to replace Jay Powell when his term ends in May.

One of the bullish factors supporting share markets is the hope that Warsh will follow Trump’s policy directions and cut rates further and reduce long-term rates by restarting QE bond buying. At present, there is much conjecture, but more positively, there are some early signs that inflation in the US is moderating.

Another encouraging factor is that US corporate earnings forecasts are increasingly positive. Many US companies have successfully cut jobs and increased AI adoption to offset tariffs and defend margins rather than raise prices, making the labour market a “release valve” for tariff pressure, and allowing the Fed to cut rates.

The US corporate earnings reporting season for Q4 2025 has been strong, with many companies exceeding earnings expectations and earnings growth in the mid-teens year-on-year. The S&P 500 returned ~16% over calendar 2025, supported by matching growth of ~16% in corporate earnings per share. The market is expensive, but no more so than it was a year ago.

Australian Shares

Australian stocks rose in January, with the ASX 200 up ~1.8%. The returns were driven by Resources, which rose ~9.40%. Taking Resources out of the index, the rest of the ASX fell around ~1% in January.

Energy was the best performer, with a gain of ~11% as geopolitical tensions drove a near ~14% gain in crude Oil. Uranium prices rose ~25%, supported again by the data centre theme. After a strong January, Energy stocks are ~6% higher than a year ago, well behind the ~47% gain in Mining stocks over the last year.

Gold shares were up strongly with a gain of ~13% in January, but a large part of that gain was given back on the first trading day of February after the nomination of Kevin Warsh sparked a dramatic sell-off in precious metals.

Technology was the worst performer with a loss of ~ (-9%) as investors rotated from growth to value, and due to concerns about AI disruption to software-based business models. These factors are driving a valuation reset in the tech sector, which is now the worst performer over the last 12 months, with a decline of ~28%. Value outperformed growth by ~3.7% over January driven by the gains in energy stocks and the weakness in technology. This was not just a trend in Australia, but in all developed markets.

The ASX is still at historically expensive levels, but much will depend on earnings results coming through. With reporting season under way, earnings forecasts are rising in line with spot commodity prices, and if consensus expectations are realised, this will end Australia’s 3-year earnings recession. Resources have been the key driver of earnings upgrades for the Australian market in recent months. Banks have also seen modest upgrades since the pivot to expecting RBA hikes, as this drives upgrades to margin forecasts.

Commodities

Commodities markets captured a lot of attention over January, particularly in the precious metals. There are a few themes driving this: during times of “sticky inflation”, investors want to buy “real” assets (real estate and commodities). Other themes are the “debasement trade” (rising government deficits and spending, more central bank money printing) and a weaker US dollar. Gold was up ~13% for the month (in US dollar terms), on top of ~65% last year. Silver was up ~19% for the month (it was up ~65% before falling back at month-end) after a ~150% gain in 2025.

Industrial commodities were likewise well supported. Demand is backed by the energy transition, the extraordinary AI-driven and data centre boom, and the global military build-up. Copper was up over ~4% and lithium experienced a spike in prices. Oil prices were up ~14% in January with Trump’s attack in Venezuela and rising tensions in Iran. Rising energy prices flowed through to fossil fuel share prices globally.

Bonds

Bond markets posted small gains in January after another poor year in 2025. Ten-year Treasury yields rose to ~4.2% in the US, and in Australia across all maturities as markets priced in rate hikes and sticky inflation. The 10-year bond ended the month at ~4.81% (up about 3 bp). Elsewhere, yields rose sharply in Japan (ten-year bonds up 18 bp to ~2.25%), and back to levels not seen in decades thanks to PM Takaishi threatening more fiscal blow-outs and more debt. However, yields fell back in other markets on slower growth outlooks.

Currencies

The Australian dollar had a strong month in January, rising toward the 70 US cent level, supported by stronger commodity prices. The currency appreciated against the US dollar and most major currencies over the period.

The major currency story is really about Trump’s ongoing attempts to lower the US dollar to make US exports cheaper for foreign buyers, and imports more expensive. Trump has succeeded in bringing down the US dollar – which is a more sensible strategy than tariffs, but the greenback is still relatively strong and is back to where it was ten-years ago.

Global Economic Growth Outlook Looks Pretty Good

The Group of 20 (G20) constitutes around ~85% of the world output – bringing together the world’s largest advanced and emerging economies. Any shifts in growth rates across these economies offer a glimpse into the broader trajectory of the world economy – which is set for uneven growth in 2026. Global growth is projected at 3.3% for 2026 and 3.2% for 2027, revised slightly up since the October 2025 World Economic Outlook. But overall, real growth (after inflation) looks pretty good, going some way to justifying record highs in markets across the globe, and strong commodity markets.

There is an important development – the growth momentum is increasingly concentrated across the emerging markets (e.g., India, Indonesia and China), with advanced economies set to grow at slower rates – hindered by fiscal constraints.

Still, with inflation pressures generally lower and monetary policy easing by the major central banks over the last year still aiding recovery, growth prospects across these major economies are reasonable if a little tentative.

The US Economy Is Still The Key

US corporate earnings look bullish: the long-term outlook for the stock market is still favourable, bolstered by expectations for solid earnings growth. Earnings are the most important driver of stock prices.

US consumer demand is positive, supported by healthy consumer and business balance sheets. The Federal Reserve has shifted its focus toward supporting the labour market. There is pressure from Trump for the Fed to keep cutting rates.

Corporates in the US are in decent shape. Since the pandemic, companies have aggressively adjusted their cost structures. This came with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth is translating to robust earnings growth.

No Time for Complacency

We must not get complacent. There are always risks to worry about, such as US political uncertainty (Trump likely to lose the House of Representatives in the November mid-terms), geopolitical turmoil (another US attack on Iran might be on the cards), energy price volatility, disruption in bond markets, and problems in private debt and private equity firms. And of course, add in extended valuations. Any of these risks can flare up and spark volatility in the markets.

For now, there’s reason to be reasonably optimistic about prospects for 2026, but it is a long game and short-term volatility is best accepted as part of the process, and should be embraced rather than feared.