Reflections of the CIO…

January saw a strong start to 2026, with ex-US equities, emerging markets and commodities all performing strongly, encouraged by growing evidence that economic growth is accelerating. This is likely to be a defining theme for the year ahead, as the investment environment becomes increasingly dominated by working out the balance between the benefits of good growth and the coincident risks of inflation surprises and frothy sentiment. There is also the lingering risk of a growth slowdown to factor in, especially in the latter parts of the year as the impact of current fiscal and monetary stimulus starts to fade.[1]

The month was defined not only by strong progress in headline indices, but also, beneath the surface, by an ongoing rotation between and within the different asset classes. Assets which had been overlooked in recent years, such as emerging markets and commodities, continued to perform strongly.[2] Overall, global ex‑US equities continued to regain ground compared to US equities, albeit the US is still delivering decent, positive returns.[3] Leadership within US mega‑cap technology stocks became far more dispersed, reflecting a maturing phase of the market cycle in which investors are beginning to differentiate more carefully between business models and earnings profiles. Put another way, the jury is still out on whether the massive capital expenditure programmes announced by these companies will ever earn an acceptable return. Until that picture becomes clearer, investors are rewarding the companies who are delivering tangible profit growth alongside their mammoth investing plans, and punishing those relying a little too much on ‘jam tomorrow’ hype.

A softer US dollar, which fell by 1.3 per cent on the month, provided an additional tailwind to non‑US assets in general and risk assets in particular.[4] Volatility remained largely contained, although a modest rise in both the VIX and credit spreads towards the end of the month indicated increasing sensitivity to geopolitical developments.

After cutting rates three times at the end of 2025, the Federal Reserve held interest rates in their 3.50 to 3.75 per cent range in January.[5] The decision was not unanimous, with two committee members voting in favour of another cut, highlighting the internal debate over how quickly to proceed in an environment of softening inflation but improving growth. Most markets responded positively to the announcement of Kevin Warsh as the nominee for Federal Reserve Chair, interpreting his appointment as a stabilising force for central bank independence.[6] However, precious metals, which had risen aggressively earlier in the month, sold off sharply on his appointment, as investors rowed back on hopes for further large reductions in interest rates.

Fixed income markets struggled to keep pace with risk assets, as rising yields offset the benefit of a high running income. Japanese government bond yields rose to 2.25 per cent ahead of February’s snap election and acted as a source of uncertainty for bond investors globally.[7] Strength in commodities was another source of drag, especially in the oil market which rose over 10 per cent amid escalating tensions between the United States and Iran.[8]

Geopolitics, as ever, remained a key theme. The conflict in Ukraine showed no signs of progress towards resolution, while Venezuela’s shift toward a more US‑aligned administration reduced near‑term tail risk in the region. The most significant development undoubtedly came from the Iranian/US standoff, where widespread unrest has prompted a considerable build‑up of US military presence. This increases the potential for a more extensive intervention and fed directly into the oil price rise described above.

With equity market leadership broadening and dispersion of returns rising across and within asset classes, we continue to see a constructive environment for active asset allocation. Our equity exposure remains broadly balanced between US and non-US markets, a shift we have been enacting for many months now, reducing a much higher US allocation on valuation grounds. We have moved to buttress our emerging market exposures with a specific new allocation to India, catalysed by much better valuations than previously available and by a tariff related low point in sentiment. This combination of factors offered an attractive entry point to a country with good, long run growth prospects and very solid diversification benefits (as Indian equities often tend to ‘do their own thing’ compared to other equity regions, which are more sensitive to global risk sentiment).

Our fixed income holdings remain split between safer, shorter duration government bonds (with an increasing UK flavour) and more ‘return seeking’ emerging market exposures. Alternatives remain a vital component of risk control, offering good protection against unexpected inflation or geopolitical shocks which can have a nasty habit of unsettling stock and bond markets at the same time.

In summary, January delivered a combination of rotation and improving macro indicators alongside the now familiar geopolitical challenges. The early signals for 2026 do suggest a more resilient global backdrop than markets had anticipated and we suspect that this might pull forward returns a little into the first part of 2026, before the strong macro stimulus of the last year or so starts to fade. Taking all of this into account, we can still find enough reasons to be positive on outlook, without getting too carried away.

Best regards,

The Saltus Asset Management Team
February 2026