Markets Start the Year on an Up Note, but Geopolitical Risks Remain
Well, it’s February, and that pesky rodent, Punxsutawney Phil, saw his shadow again on Groundhog Day. According to the legend, that means six more weeks of winter, which is bad news for much of the country because, weather-wise, this winter has been a rough one! As for the financial markets, thankfully, things have been a bit calmer.
In January, the overall stock market — as measured by the S&P 500 — was up by 1.4%.1 What’s encouraging as we start the year is that many of your portfolios, which are designed to be more conservative than the broader market, actually did better than that. In fact, our median portfolio was up between 1.5% and 2% for the month. Naturally, those are averages, and every portfolio is different. But, overall, that’s exactly the kind of outcome we like to see, and it gets us off to a strong start.
Markets Widening
As you know, for the last couple of years, market gains have been driven mostly by a small group of large tech companies, especially those tied to artificial intelligence (AI). That run lasted longer than usual, but toward the end of last year, investors began to reassess expectations.
While there’s no doubt that many AI companies will likely still be very profitable, there is a consensus now that they may not be as profitable as originally anticipated. And because the markets are forward-looking, that shift in expectations has caused some cooling in tech stocks.
As a result, the market is starting to widen out, meaning performance is spreading beyond just a handful of tech names. That’s healthy, and potentially better for a broader range of investors, including those focused on income. In fact, our more diversified, income-focused stock-dividend strategies actually outperformed the broader market by an even wider margin last month, with gains ranging from roughly 3.75% to just over 5%.
Fed Pauses
As for economic fundamentals, the picture remains fairly stable. Inflation is still below 3%, which is reasonable, and long-term interest rates remain in the same 4–4.3% range that they’ve been in since August. The interest rate on the 10-year government bond began in January at 4.19% and ended the month at 4.27%.2
Although consumer spending appears to be softening, that’s mainly among middle-income households, while higher earners are still spending at a healthy rate. While jobs data remains mostly mixed, there is no real red flag pointing toward a possible recession. That’s primarily why the Federal Reserve, as expected, opted not to lower short-term interest rates again at their January policy meeting.
All that said, there are still a variety of issues – mostly geopolitical – with the potential to negatively impact the markets in the coming months. In addition to ongoing wars and tensions abroad, political dysfunction right here at home is higher than normal, so much so that we are once again in the midst of a partial government shutdown.
The ongoing use of tariffs as a negotiating tool also remains a concern for investors. The bottom line is that the financial markets hate uncertainty, so all of these factors are worth keeping a close eye on.
Well-Positioned
The good news, of course, is that with an income-focused strategy, you’re already more well-protected from any market turmoil that may lie ahead. With a portfolio of bonds and bond-like instruments, you can rest easy knowing that any drops in value in your portfolio are ultimately only paper losses because your principal is better insured. You also know your income return is unaffected, and you can count on it regardless of any market volatility.
And even if you are carrying a bit more risk in your allocation, you may have the opportunity to use market volatility as a buying opportunity to help increase your future income and growth potential.
As always, if you have questions, want to review your allocation, or are simply unsure how current events might affect you, please don’t hesitate to reach out. We’re always here and happy to help. Meanwhile, stay warm and try to enjoy the rest of February and the rest of winter – however long it may last!
Sources:
1 https://www.nasdaq.com/articles/january-2026-review-and-outlook
2 https://www.marketwatch.com/
Investment Advisory Services offered through Sound Income Strategies, LLC, an SEC Registered Investment Advisory Firm. Wright Financial Group and Sound Income Strategies, LLC are not associated entities. Wright Financial Group is a franchisee of Retirement Income Source®. Retirement Income Source® and Sound Income Strategies LLC are associated entities.