Watch: In our latest market update, Stefan Smith, Senior Investment Analyst, talks about what drove markets in January, how different areas performed, and why diversification remains important as we move through 2026.
The new year has begun with a burst of energy across global markets. Despite ongoing geopolitical uncertainty, we saw a continued “broadening” of the market rally, as gains spread beyond the large US technology firms into smaller companies and international markets.
The big picture
The global equity markets are supported by what we call a “Goldilocks” environment – this is where growth is steady and inflation is easing.
In the US: The economy remains on solid footing. Data showed the economy grew at a healthy 4.4% in Q3 and unemployment remains low at 4.4%.
In Europe: Economic growth was stronger than expected, with Eurozone GDP and German industrial production outperforming forecasts, while inflation was more subdued.
Central Banks: There were no policy rate changes from major central banks in January as they continue to monitor stronger economic activity and easing inflation.
However, January was not without its tensions. Significant geopolitical events,including US operations in Venezuela and trade friction regarding Greenland,initially sent ripples through the markets. These tensions fuelled a sharp surge of 9.8% in USD (4.4% in NZD) in the broad commodities index. However, much of the initial “panic” subsided following the Davos gatherings late in the month.
Equity markets: diversification pays off
The New Zealand stock index (NZX50) fell 0.9%, while other areas of the market soared.
International strength: Global equity markets rose 3.0% in USD (-2.1% in NZD). The lower return in NZD terms is due to the strength of the New Zealand dollar over the month. Japan was a top performer, with stocks rising 5.9% in JPY.
Developed market small caps & value: Smaller companies were the standout performers, jumping 5.7% in USD (0.5% in NZD). We also saw “Value stocks”, or companies priced lower relative to their fundamentals, outperform “Growth stocks”.
Earnings over hype: Importantly, these gains are mainly being driven by actual company profits rather than just speculation. US earnings reports came in about 9% higher than analysts expected.
Bonds, interest rates and currencies
In New Zealand, interest rates edged higher resulting in a 0.5% decline for bonds and an increase of 5.2% in the New Zealand dollar in USD terms.
Internationally, while stocks rallied, the bond market was more subdued, returning a modest 0.9% in USD (-4.0% in NZD). As economic data came in stronger than expected, investors pushed back their expectations for when the US Federal Reserve might start cutting interest rates. In Japan, bonds had a difficult start to the year. Interest rates ,which move in the opposite direction of prices, rose significantly due to concerns about government spending.
The US dollar index declined by another -1.4% with the USD losing especially versus the AUD and NZD.
Our investment approach
The volatility we saw in January is a timely reminder of the value of a disciplined, diversified approach. By avoiding over-reliance on any single sector or country, the Aurora funds are positioned to remain resilient during periods of geopolitical uncertainty. We remain confident as we move further into 2026.
