Week of Jan 19-25, 2026: Market Trends and Opportunities

The 2025 Market Surprise: Defying Recession Predictions

Heading into 2025, most big shops—JP Morgan, Goldman Sachs, the IMF—were calling a 60% chance of recession. Tariff fears, inflation jitters, rising rates. The usual scary stuff. Markets didn't cooperate.

The S&P 500 delivered nearly 18% returns. That wasn't a fluke. The Fed cut rates strategically, inflation cooled, corporate earnings stayed solid, and the US economy grew faster than forecast. The lesson: fear-based forecasts often miss the real strength underneath.

More important: this happened despite real policy uncertainty and trade tensions. It tells us that diversified portfolios, disciplined strategies, and a focus on earnings can handle serious macro headwinds. That sets the table for 2026.

The Great Rotation: International and Emerging Markets Take Center Stage

The biggest shift in 2025? International stocks crushed US equities. The S&P Global Ex-US Broad Market Index gained over 28%—nearly double the S&P 500's 16%. Developed markets outside the US returned more than 31%; emerging markets came in above 20%.

This wasn't random. A few things lined up:

• Dollar weakness: The US Dollar Index dropped from above 108 to mostly 96–100 by mid-year, making foreign assets more attractive and boosting returns for US-based investors holding international positions.
• Valuation divergence: Non-US stocks are still cheaper than US equities. Better risk-reward for value-focused investors.
• Earnings growth acceleration: Asia saw strong AI-related earnings; Europe benefited from higher defense and infrastructure spending.
• Foreign capital flows: Sovereign wealth funds and FDI poured into US AI companies—paradoxically, US assets attracted foreign cash while international stocks outperformed.

We expect this rotation to continue in 2026, but with nuance. The S&P Global Ex-US Broad Market Index is projected to extend its rally, though the US could regain some lead as valuations compress and earnings growth spreads out. Bottom line: broad geographic diversification isn't optional anymore. It's how you optimize risk-adjusted returns.

Emerging Markets: The Underappreciated Opportunity

Emerging markets deserve a hard look in 2026. Earnings growth is resilient, valuations are attractive relative to developed markets, and the macro backdrop—softening dollar, potential Fed easing—works in their favor. India, which lagged in 2025, looks set for stronger performance. Higher income per capita growth, more prudent fiscal policy than the US, and vulnerability to positive global growth surprises all support the case.

But risks are real: geopolitical uncertainty, trade policy volatility, commodity price sensitivity. The fix is disciplined position sizing and diversification across multiple emerging economies—not single-country bets.

US Market Dynamics: Tech Valuations and the Earnings-Driven Future

International markets got the headlines, but the US is shifting too. Q4 2025 showed it clearly: the S&P 500 gained 2.35%, the Nasdaq Composite added 2.57%, and the Dow advanced 3.59%. Solid, but the driver is changing—from multiple expansion to fundamental earnings.

Goldman Sachs research says 2026 returns will be more about profit growth than rising valuations. Global equities are projected to return 11% over the next 12 months, mostly earnings-driven. That changes how you should think about your portfolio.

The mega-cap tech dominance that defined recent years is cooling. AI-related names are still interesting, but concentration risk in those stocks has created valuation excesses that probably won't hold. We're looking at:

• Value stocks: Companies trading below intrinsic value with solid earnings growth.
• Small-cap equities: The Russell 2000 recently outperformed the S&P 500 on a trailing 12-month basis—capital is rotating toward smaller companies.
• Defensive sectors: Healthcare, utilities, consumer staples for stability when volatility hits.
• Defense technology: Global defense spending commitments are supporting this space.

For traders using AI-powered tools—like MoneyChoice Capital's platform, which has an 80%+ long-run accuracy on price targets—identifying these earnings opportunities is a real edge. When markets shift from momentum to fundamentals, the ability to assess corporate profitability accurately matters more than ever.

Interest Rates and Currency Dynamics: The Dollar's Declining Dominance

The Fed's path matters a lot for 2026. They cut rates six times from September 2024 through end of 2025, responding to cooling inflation and stable employment. Markets now expect another 25–75 basis points of cuts in 2026, though expectations are mixed—sticky inflation vs. weakening labor signals.

Lower rates have big implications for currencies and international investing. Declining US rates will likely cap the dollar's upside in 2026. Central banks are already diversifying reserves away from dollars, creating structural support for alternative currencies and international assets.

A Fed tilting toward lower rates lets emerging market central banks keep expansionary policies—supporting growth and equity valuations in those markets.

But expect periodic dollar strength from risk aversion or macro surprises. Those temporary reversals can pressure emerging market assets—and create tactical opportunities for contrarians. Understanding currency dynamics is essential for navigating international equities this year.

Sector-Specific Opportunities and Strategic Positioning

Geographic diversification is table stakes. Sector selection matters more in an earnings-driven market. Here's where we're focused:

Technology and Defense Technology

Broad tech valuations may face compression, but defense tech and growth-oriented tech remain attractive. Global defense spending commitments—especially in Western Europe—support the thesis. Companies in advanced defense systems, cybersecurity, and AI-enabled defense applications should benefit from sustained capital allocation.

Healthcare and Pharmaceuticals

Western European healthcare markets look interesting. Aging demographics and innovation drive persistent demand. Healthcare stocks offer defensive characteristics with growth potential—good for stability in volatile markets.

Infrastructure and Renewable Energy

Fiscal stimulus in major economies is boosting growth through infrastructure investments. That creates opportunities in companies providing development, maintenance, and renewable energy solutions. These benefit from both government support and long-term sustainability trends.

Financial Services and Insurance

Interest rate uncertainty and volatility create hedging demand. Financial services and insurance companies could see increased activity and profitability. AI-driven efficiency improvements in operations and risk management are also helping.

Risk Management and Portfolio Construction for 2026

The move from a concentration-driven market (mega-cap tech) to a more diversified landscape requires thoughtful construction. A few principles:

• Geographic diversification: Developed markets, emerging markets, international developed—capture returns across growth cycles.
• Style diversification: Balance growth and value to benefit from shifting leadership.
• Sector breadth: Avoid concentration, especially in tech, which may face valuation headwinds.
• Currency hedging: Consider selective hedges for emerging market exposure if dollar volatility worries you.
• Quality focus: In an earnings-driven market, prioritize companies with sustainable competitive advantages, strong balance sheets, and consistent profitability.

Volatility will persist—episodes of risk aversion could temporarily pressure emerging markets and international equities. But the fundamental tailwinds for diversified global growth remain intact. Disciplined investors who avoid emotional decision-making and maintain broad exposure will likely be rewarded.

Positioning for 2026's Investment Landscape

This year presents both challenges and real opportunities—for anyone willing to move beyond the concentrated bets that defined recent years. The 2025 surprise showed that fundamental economic strength and discipline can overcome significant headwinds. The rotation toward international and emerging markets, driven by valuation gaps, currency dynamics, and earnings acceleration, creates a more level playing field.

Success in 2026 means moving past simple narratives. Geographic diversification isn't optional. Sector selection must reflect earnings growth potential, not momentum. Currency dynamics and rate trajectories matter for positioning international assets. And most importantly: focus on fundamental profitability and sustainable growth, not valuation expansion.

This market environment will separate sophisticated investors from those still using old playbooks. Those who understand what drives returns across geographies and sectors, who can identify earnings opportunities amid valuation dispersion, and who maintain disciplined risk management will capture the opportunities ahead.