STOCK MARKET RECAP JANUARY 2026
- philmcavoy
- 1 day ago
- 3 min read
As of Thursday 1/22, the market has rebounded from the latest tariff volatility coming out of Washington – Tuesdays losses have been recovered.
The chart below shows the price changes for the S&P 500 and the Nasdaq since the beginning of last year.
You can see the big drop early last year during the first tariff scare. You can also see the huge gains from late April through late October last year. The S&P gained over 30% during that run and the Nasdaq gained over 40% over those six months.
For the last three months, that rally has stalled out. Prices are basically flat from the end of October until now. This is not unusual as markets need to pause to digest the huge gains.
The AI/technology trade was behind the drop in November. AI stocks and tech stocks have since recovered those losses.
January is a good time to take a step back and look at some longer-term trends.
Stock market gains have been exceptional over the last three years – way above normal. Here are the average annual returns compared to long-term averages (normal returns).
2025 Last 3 Years Normal
S&P 500 17.9% 23.0% 10%
Nasdaq 21.9% 31.5% 12%
A risk for investors after terrific performance like this is to become overconfident. Everyone starts to think they are a market genius at times like this. The stock pickers think they can't lose and take on too much risk. Don't get fooled and stay disciplined with your investing.
AI spending and AI expectations have been the main driver of this recent outperformance. AI investments have been massive and are a big driver of the US economy at present.
If AI expectations deliver on the promise, these gains are justified and could continue. If the impact of AI disappoints, the market could take a hit. This is why the market has reacted so quickly to all AI news.
Job growth has slowed and is now pretty flat. The inflation reports show price increases running ahead of Fed desires, but the rate of increase is pretty stable.
If job losses accelerate, we can expect some modest rate cutting from the Fed. Fed cuts will minimize the impact on stock prices from an increase in unemployment.
My stock market valuation gauge indicates that the stock market (S&P 500) is still about 25% above its fair market value. Short of some news about big productivity increases from AI, it will be difficult for stocks to climb much higher at these valuation levels.
I do not trade based on market valuation levels and you should not either. It is just a reminder that you need a strategy in place to protect your savings in case we experience a bear market. Older investors in particular need loss protection during stock market downturns.
My investing system comes with built-in loss protection. It is designed to avoid most of the losses in bear market meltdowns. But it also produces big gains in bull markets. You can now invest in my system directly from your brokerage account. Click on this link to get on my calendar to learn how to start using my Growth and Safety fund.
Stay Disciplined My Friends,
Phil
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Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
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