January 2026 index market overview: bullish sentiment meets stretched valuations

US markets: large-cap divergence and AI rotation 

While the S&P 500 (+1.9%) and Nasdaq 100 (+1.3%) posted gains over the past month, they failed to keep pace with international bourses. 

The shift to hardware over software 

A notable turmoil is occurring within US equities as investors factor in the changing landscape of generative AI. 

• Investors remain bullish on semiconductor-linked stocks but bearish about prospects for software applications companies.
• Robust demand for semiconductors is buoying manufacturers due to the rapid build-out of AI data centers.
• Concerns about the viability of business models have seen Microsoft tumble from the largest company in the S&P 500 to fourth. 

US index performance snapshot (15 Jan 2026) 

• S&P 500: The index is at 6,927, representing a 1.9% monthly increase and a 16.4% rise year-over-year.
• Nasdaq: The index is at 25,466, up 1.3% for the month and 19.9% year-over-year.
• Dow Jones: The index is at 49,149, showing a 1.5% monthly gain and 13.7% growth year-over-year. 

European indices outperform: FTSE 100 breaks 10,000 

European bourses generally performed well, with the FTSE 100 (+5.2%) and DAX 40 (+4.4%) showing strong momentum. 

FTSE 100 milestone 

The FTSE 100 breached the psychological 10,000 barrier on January 2nd and currently sits at 10,184. 

• The rally was broad-based, with 81 out of 100 companies strengthening over the past month.
• Gains were led by Fresnillo (+31.9%) and Glencore (+27.2%).
• A primary factor for historical underperformance compared to US indices is attributed to subdued long-term earnings growth rather than listing domicile. 

DAX 40 breakout 

Germany’s DAX 40 broke out of its recent range to reach 25,286. 

• The gain was led by industrial companies, including Rheinmetall (+17.1%) and Bayer (+15.1%).
• Concentration risk concerns appear to have shifted from SAP and Deutsche Telekom to the Siemens Group. 

Investor sentiment: bullish but fragile 

Indicators of investor sentiment remain robust, underpinned by solid earnings growth. 

• The American Association of Individual Investors (AAII) survey (14 Jan) showed 50% of those polled are currently bullish, well above the historical average.
• Margin debt continues to climb, reaching USD 1,225.6bn in December, up 36.3% year-over-year.
• Despite this optimism, the S&P 500 forward P/E ratio of 22.2x remains close to its post-millennium peak and well above the historical average of 16.9x.

Looking ahead: key dates for Q1 2026 

Upcoming events and earnings reports will be critical for maintaining current market momentum: 

• Jan 28: US FOMC meeting (expected to maintain funds rate at 3.75%).
• Jan 28-29: Earnings reports for Microsoft, Tesla, and Apple.
• Feb 5: BoE and ECB monetary board meetings.
• Feb 6: US Employment Report for January. 

Stay updated 

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