Peter Wang, Portfolio Manager of RBC Dominion Securities Inc.

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Welcome to our January 2026 market update.

Major equity indices have delivered positive performance so far this month. The S&P 500 has advanced modestly, while the TSX Composite has shown stronger gains. International markets have also posted solid returns, reflecting improved global growth sentiment despite ongoing tariff discussions and geopolitical developments.

Key drivers include continued progress in AI, a healthy IPO environment, and a sharp rally in commodities. Gold has reached new record highs amid geopolitical tensions and a softer U.S. dollar, benefiting commodity-linked sectors while creating headwinds for certain equities. U.S. tariff proposals and concerns about China’s growth trajectory continue to introduce uncertainty.

Markets are now focused on the recent Federal Reserve interest rate decision and quarterly earnings from leading technology companies, which have contributed to some volatility.
From a technical standpoint, major indices remain in positive territory, though momentum has moderated and market breadth has narrowed. Expectations for AI-driven earnings growth remain a supportive factor.

Sector performance reflects a rotation toward cyclicals and commodities. Materials and Energy have led, followed by defensive areas such as Consumer Staples and Industrials. Technology has shown moderate gains, while Financials have lagged.

On inflation:
• In the U.S., December 2025 CPI rose 2.7% year-over-year, with core CPI at 2.6%.
• In Canada, December 2025 CPI increased 2.4% year-over-year, up from 2.2% in November (January 2026 data will be released in mid-February).

January has demonstrated market resilience amid uncertainties, including geopolitical risks, policy shifts, and inflation dynamics. A disciplined, long-term approach remains the most reliable strategy.

Canadian CPI eased to 2.2%, while U.S. CPI is delayed due to the government shutdown. Markets were choppy in November, driven by concerns around the U.S. labour market, stretched AI valuations, and shifting rate expectations—now pointing to one or no Fed cuts this year and no cuts in Canada until 2026.

The U.S. labour market is softening, but jobless claims remain stable, suggesting no major cracks for now. A key trend: high-income households now drive nearly half of all U.S. consumer spending, making the economy more sensitive to market swings and high-income sentiment.

Recent market pullbacks appear more about liquidity and Fed tone than fundamentals. Corporate health remains solid, and while valuations are high, we don’t see signs of a broader trend breakdown—though short-term pauses are normal.

Despite short-term volatility, long-term equity investing continues to offer strong probabilities of positive returns.