27 February 2026

 

Key takeaways:

  • The US share market rotated away from big tech companies into select defensive sectors, metals and small caps. 
  • The European share market continued its outperformance over the US. 
  • Rising interest rate expectations led to a small decline in the domestic bond market. 

 

Below is an in-depth review of financial markets over January 

Geopolitics threatened to derail the share market’s momentum over January. However, despite increasing uncertainty, the global share market1 ended up 2.5% (all returns are in local currency unless otherwise stated). Markets were buoyed by robust economic data and strong earnings in the US that in general comfortably exceeded expectations. Forward looking company guidance has also been healthy. 

It wasn’t all plain sailing over the month as geopolitical tensions, centred on the US, threatened to derail the market rally. The capture of the Venezuelan President signalled a shift in the Trump Administration’s willingness to take direct action. For this reason, Trump’s escalated threats to take over Greenland were taken more seriously than perhaps they would have been earlier in his presidency. Rhetoric shifted quickly from a takeover of Greenland to imposing tariffs on European nations who did not support his ‘Greenland acquisition’ ambitions. Later in the month Trump formally withdrew the tariff threat. 

In the US, share markets saw a rotation away from the technology sector especially software names, favouring select defensive sectors, small caps and metals. Energy was the best performing sector driven by increased demand, as severe winter weather hit the US, alongside the heightened geopolitical tensions. The materials sector also performed particularly well as a flight toward hard assets like gold and industrial metals took hold. The US share market2 finished January up 1.5%.  

European share markets performed strongly in January, rising 3.2%, outperforming their US counterpart. Unlike the US, where technology shares struggled, technology was one of the strongest sectors in Europe. After a fairly subdued 2025, the information technology sector got off to a strong start in 2026, increasing 5.3% over the month. This was driven largely by strong gains in semiconductor companies, including Besi and ASM International, which benefited from improving sentiment around global chip demand. 

Australian shares began 2026 with notable momentum, continuing the positive trend seen at the close of last year. The Australian share market3 ended up 1.8% over January. On 3 February, the Reserve Bank of Australia (RBA) lifted interest rates for the first time in more than two-years to fight rising inflation. Household spending was cited as one of the key drivers of inflation. Small cap-stocks continued to outperform larger cap names. In New Zealand, the share market4 declined 0.9%, as both macroeconomic developments and company specific news weighed on share prices. Expectations of higher interest rates placed pressure on a broad range of defensive, yield-sensitive and cyclical stocks. 

Stronger than expected New Zealand inflation figures drove a lift in interest rate expectations, with the market now pricing in close to two Reserve Bank of New Zealand rate hikes (50bps) by the end of this year. This produced small losses in domestic bonds over the month as bond yields move in the opposite direction to bond prices. In Japan, government bond yields experienced a historic surge as investors reacted to Prime Minister Takaichi's plans for unfunded tax cuts and fresh fiscal stimulus. This briefly sent 40-year yields above 4% for the first time on record before unwinding. In the US, the Federal Reserve paused cutting interest rates at 3.5%. Yields crept higher with the 10-year Treasury yield finishing at 4.24%. 

The differing fortunes of various market indices are illustrated in the chart below. 

Returns of selected major markets to 31 January 2026

Note: Returns are in local currency terms.

The Outlook

Perhaps it is par for the course these days, but it has been an event-filled start to the year. Headlines have been loud, politics has been messy and geopolitical risks have once again commanded attention. Yet despite the turbulent backdrop, financial markets have mostly taken it in their stride, with share markets supported by an underlying set of economic and corporate fundamentals that remain broadly healthy. 

This contrast between an unsettled narrative and relatively resilient market outcomes is an important feature of the current environment. It could also be a useful lens through which to think about the year ahead. The first few weeks of the year has offered something of a snapshot of how the remainder of the year could unfold: plenty of policy noise, no shortage of political theatre, but fundamentals that continue to do much of the heavy lifting for markets. 

Through all these considerations, JBWere’s (our lead investment manager), core views remain unchanged. While there are certainly risks and crosscurrents to monitor, they see tailwinds for the global economy, including ongoing technological investment, supportive monetary policy settings and generally healthy private sector balance sheets. With inflation largely contained, it is difficult to identify clear catalysts that would trigger a deep and sustained share market downturn. This does not imply a straight line higher for markets. Periods of volatility, pullbacks and sector rotations are to be expected. Particularly in an environment characterised by elevated valuations and policy uncertainty. However, through a medium‑term lens, fundamentals still argue for a broadly constructive stance. 

For investors, the key implication is not to ignore policy noise, but to keep it in perspective. Dialling down the volume on the news flow helps maintain focus on the factors that ultimately drive medium-term portfolio returns. Equally important is the need to resist the temptation to try and time markets by switching between funds. In an environment where sentiment can shift rapidly, switching between funds based on news headlines is unlikely to be rewarded. Instead, keeping your investment horizon in focus and maintaining a well‑diversified portfolio across asset classes, styles and regions remains the most robust approach in our view.  

We have useful online tools to help you:

If you decide to change your Fund after reviewing your risk profile or meeting with a MAS Adviser, you can make a switch via the MAS Investor Portal, or alternatively you can complete an investment strategy change request form. There is no fee for switching. Links to the relevant forms are below.     

You can see weekly updates on fund unit prices and returns on our website.

1 As represented by the MSCI All World Country Index.
2 As represented by the S&P 500 Index.
3 As represented by S&P/ASX 200 Index. 
4 As represented by S&P/NZX 50 Index.

This article is of a general nature and is not a substitute for professional and individually tailored advice. No party guarantees the return of capital or the performance of investment funds. Returns indicated may bear no relation to future performance. The value of investments will fluctuate as the values of underlying assets rise or fall.

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