Economic Update 1-12-2026

Economic data included improvements in ISM services, mixed results for housing starts and the December employment situation report. On the more lackluster side, ISM manufacturing and JOLTs job openings declined.

Equities gained globally last week as the New Year started with optimism and a lack of bad news. Bonds were higher in the U.S. and mixed abroad. Commodities gained in every segment last week, with oil markets in focus after the regime change in Venezuela.

U.S. stocks started the first trading week of the year positively, led by a rally in economically-sensitive small cap names. Economic data was mixed, but perhaps not strong enough to push off several expected Fed interest rate cuts in 2026. By sector, gains of 4-6% in consumer discretionary (Amazon and Home Depot, among others) and materials led for the week, while utilities fell by over a percent. Real estate was up slightly.

In real estate, the big news was an announcement that the U.S. administration would seek to block further institutional ownership of single-family homes. While they still only own a small fraction of such homes, institutional buying of home rentals (like in private equity funds) is a populist political issue in a period of low inventories and high unaffordability. Players in that space, such as Blackstone, fared poorly in the wake of the news, despite little detail so far. With mid-term elections on the horizon, policies to help the key affordability issue could come at a greater clip, but there aren’t often quick and easy solutions to those problems.

Foreign stock returns were largely in line with those of U.S. large caps last week, despite the headwind of the U.S. dollar gaining nearly a percent. Japanese stocks gained over 2%, beating both Europe and emerging markets. European stocks saw some improvement in economic data, pointing to a potential turnaround. In EM, returns were mixed with strong gains in South Korea and Turkey, while India pulled back.

Bonds saw gains across the board, although rate changes were mixed across the U.S. Treasury yield curve, although higher base yields now provide a stronger positive starting point to returns generally. High yield outperformed investment-grade corporates and Treasuries slightly. Foreign bonds were mixed, and dependent on exposure to the stronger dollar last week.

Commodities fared positively for the week, led by continued gains in precious metals and industrial metals, as well as energy and agriculture. Crude oil rose 3% last week to $59/barrel, with some concern over intensifying protests in Iran towards the current regime, with the removal of Pres. Maduro in Venezuela barely moving the needle.

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.