January 2026 Recap: High Markets, Low Confidence

January 2026 delivered a mixed economic picture for financial institutions, marked by record-setting markets, a cautious Federal Reserve, and growing uncertainty for consumers and global stability. The disconnect between market performance and underlying sentiment remains a key theme to watch as the year unfolds.

In January, the United States economy navigated a period of stark contrasts. The month saw a historic milestone for the stock market, as the S&P 500 crossed the 7,000 point threshold for the first time, buoyed by robust corporate earnings and continued momentum in the AI sector. Despite this market optimism, the Federal Reserve elected to pause its rate-cutting cycle on January 28, keeping interest rates at 3.5% to 3.75% as officials monitored sticky core inflation, which sits near 3% due to the ongoing effects of tariff costs, and a labor market characterized by "low-hire, low-fire" dynamics. While the unemployment rate stabilized at 4.4% and GDP growth remained solid, consumer confidence plummeted to its lowest level in over a decade. This disconnect was largely attributed to rising prices for essentials and uncertainty surrounding President Trump’s One Big Beautiful Bill Act, as its sweeping changes to tax structures and social safety nets began to impact American households.

Geopolitical uncertainty is high as multiple major conflicts continue to strain global stability. The war in Ukraine persists with ongoing attacks and humanitarian pressures amid stalled diplomacy, while the conflict in Gaza remains volatile despite ceasefire efforts, and Sudan’s civil war has triggered one of the worst humanitarian crises worldwide with millions displaced. The capture of Venezuela’s Nicolás Maduro by the Trump administration has intensified global tensions, raising concerns about sovereignty and international law, creating broader geopolitical fallout. Oil prices are at $66/barrel.

For banks and mortgage lenders, January underscored the importance of monitoring the widening gap between market strength and consumer confidence. Policy uncertainty, geopolitical risk, and a higher-for-longer rate environment continue to shape valuation assumptions, borrower behavior, and strategic planning early in 2026.

Never Miss a Beat: Top Market Insights from January

See what truly moved the markets with our monthly round-up. We've compiled all of our top market insights from last month in one place. Click below to catch up on the key economic shifts and events in January:

View January Recap