Welcome to the monthly market update from Midland Wealth Management. I’m Dan Zeigler, Senior Portfolio Manager. Today, I wanted to take a few moments to share the Investment Team’s views regarding the economy and financial markets.

Market Recap – January 2026

Market performance in January was shaped by geopolitical developments, earnings scrutiny, and shifting investor preferences. Elevated uncertainty, highlighted by renewal discussions surrounding Greenland and the potential for additional tariffs on European countries, contributed to increased volatility and weighed on US equity sentiment. In currency markets, the Japanese yen remained under pressure amid concerns around Japan’s fiscal position and political uncertainty, while US officials reiterated that they do not intend to intervene to support the currency.

These dynamics initially supported demand for safe-haven assets, extending the rally in precious metals earlier in the month. However, gold and silver prices pulled back Friday as investors took profits. The pullback in precious metals was driven in part by crowded, leveraged positioning, as a stronger dollar triggered margin-driven selling and increased short-term volatility.

Economic Growth Update

Despite heightened volatility, underlying US economic fundamentals have remained relatively resilient. The final estimate for third-quarter GDP showed the economy expanding at a 4.4% annualized pace, revised slightly higher from 4.3%, supported by steady consumer spending, increased government defense expenditures, and continued normalization in trade flows following last year’s “Liberation Day” distortions.

Looking ahead, attention is shifting to the advance estimate for fourth-quarter GDP, scheduled for release on February 20. Markets are likely to focus less on the headline numbers and more on the drivers of growth, particularly consumer demand, business investment, and inflation-sensitive services. The labor market remains central to this outlook, while job growth has moderated from prior peaks, employment conditions remain relatively firm, shaping expectations for inflation and policy into 2026.

Federal Reserve Policy & Leadership Dynamics

With growth and labor conditions still key inputs, the Federal Reserve left interest rates unchanged following its January meeting, signaling a continued preference for patience as officials evaluate incoming data. This stance remains supportive of a soft-landing narrative, while reinforcing that inflation trends and employment conditions will guide future policy decisions.

Adding another layer of focus to the policy outlook, President Trump announced his nomination of Kevin Warsh to be the next Chair of the Federal Reserve, pending Senate confirmation. Warsh, a former Fed governor with extensive policy and market experience, is viewed as a candidate who could bring a more market-sensitive perspective to monetary policy, though the confirmation process may influence market perceptions around policy stability and independence.

Earnings & AI Spend Narrative

With monetary policy on hold, corporate earnings have become a key driver of market dispersions. January reinforced a notable shift, while investors continue to believe in AI’s long-term potential, near-term market leadership is increasingly tied to proof of monetization and return on invested capital, rather than visionary spending alone.

Earnings season is now underway, with S&P 500 earnings growth expected at 8.2%, modestly below the 8.3% anticipated at year-end. With valuations elevated in parts of the large-cap market, the margin for error has narrowed, increasing the likelihood of volatility when results or guidance fall short.

Early results suggest that long-standing large-cap dominance is being tested, as market leadership has begun to broaden. International equities and small-cap stocks have continued to outperform early in the year, reflecting a more selective environment where investors are increasingly rewarding fundamentals and execution over scale alone.

Outlook

Looking ahead, markets are likely to remain sensitive to the balance between economic growth, earnings quality, and monetary policy. While growth entering 2026 has remained resilient, elevated valuations suggest a higher bar for positive surprises.

We expect periodic volatility to continue, driven by earnings dispersion, shifting interest rate expectations, and geopolitical developments. At the same time, improving participation across small-cap stocks and select international markets may create opportunities beyond the largest mega-cap names.

As always, the team meets frequently to discuss these dynamics and formulate a strategy going forward. Thank you for joining us for this month’s update, and please contact your advisor or relationship manager with any questions.