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Market Commentary

Monthly Financial Markets Commentary — February 1, 2026

Stocks and bonds both rose in the month of January, although stocks more briskly than bonds. The big story however, was the spectacular rise (and subsequent partial retracement) in metals, particularly precious metals. Gold ended the month up 11.5% but gave up about 12% on the last day of the month. Silver rose a similar amount for the month but likewise gave up a significant amount on the last day of the month. The entire complex of precious metals rose in sympathy, and some more basic metals such as copper rose in like fashion.

By all measures, such as price-earnings, price-to-sales, market-cap-to-GDP, Schiller CAPE Ratio, stocks remain grossly overvalued. But investors, particularly retail investors, remain sanguine, as momentum has returned. Every dip in the market since 2010 has proven to be a buying opportunity so it is not surprising that investors view every significant downdraft as an opportunity to purchase stocks more cheaply, and in fact do so. Speculation in the market is rampant, with margin balances and stock ownership percentages being in record territory. In short, investors are "all in". Retail investors are now supposedly the "smart money" as institutions have been much less enthusiastic about equities. Historically this is the opposite of bullish moves in stocks. Some investors are voicing concerns about the economics of the AI buildout, particularly the financing of the projected historic investment in that technology..

For 2026 the S&P 500 Index, the capitalization-weighted broadest measure of U.S. stock market performance, has returned 1.47%. The Nasdaq Composite Index, another capitalization-weighted index, but more reflective of growth stocks, has returned 0.97%. Finally, the Dow Jones Industrial Average, a price-weighted index, has returned 1.87%. All returns are on a total return basis that includes dividends.

The Morningstar U.S. Aggregate Bond Index, a broad measure of the U.S. bond market, has returned .11% for the year. The Fed cut the Fed Funds Rate by .25% three times during 2025; nevertheless the long-end of the curve did not fall much, indicating the Fed has little control over long-term rates. Credit spreads remain at very low levels, meaning that investors are demanding very little premium over so-called risk-free 10-year treasuries.

The sectors in the equity market that have performed the best so far in 2026 are Consumer Staples, Energy, and Materials at 7.4%, 14.3% and 8.6%, respectively. Financials, Healthcare, and Information Technology have fared the worst at -2.1%, -0.2% and -1.5%, respectively. This is a bit of sector rotation from 2025, as the best performing sectors last year were Information Technology, Communication Services and Utilities, all sectors tied to the AI bubble. .

The comparison of current price/earnings ratios and dividend yields as of February 1, 2026 to those of the prior year is as follows.

* based on 12-month trailing data

The dividend yield, which is at historic lows, is a reliable metric of valuation, since it cannot be manipulated as earnings frequently are. Dividend yields continued to fall in 2026.

Gold and crude oil most recently traded at $4,855.75 and $65.25, respectively, compared to $2,985.50 and $73.25 one year earlier. Gold has risen in reaction to global political instability, increased holdings by all central banks and general concerns about the value of the dollar and creditworthiness of the United States (as well as other G-7 economies, and China). Gold has significantly outperformed the S&P 500 index in 2026 (as it has since January of 2000). The price of oil has risen in reaction to political instability and a falling dollar.