Global Markets Start 2026 January on an Upward Note

Global stock markets kicked off January 2026 with a positive tone. Asian markets showed particularly notable gains, with South Korea, Japan, and China (H-Shares) equity markets rising. Artificial intelligence (AI)-themed stocks continue to attract investor attention due to their long-term growth potential and strong earnings prospects.

This early-year rally is traditionally associated with a phenomenon called the 'January Effect.' The January Effect refers to the tendency for stock markets to rise at the beginning of the year, historically explained by three factors:

1. Year-end tax-loss selling followed by early-year repurchasing
2. New capital inflows at the start of the year (institutional and retail investors)
3. Positive investment sentiment associated with the new year

The January Effect Can No Longer Serve as an Investment Strategy

However, the influence of the January Effect has significantly diminished in modern financial markets. Kesaree Ayuttakka, team head at SCB's Chief Investment Office (CIO), emphasizes that this phenomenon should no longer be used as a direct investment strategy.

Analyzing the past 20 years of data reveals that January returns for the MSCI World Index have been inconsistent. While some years saw strong gains, many others experienced declines from the start of the year. Seasonal data shows that while Q1 through April is generally positive, January and February have actually been periods of high volatility.

This indicates that the January Effect is no longer as reliable a pattern as it once was. As market structure and investor behavior have evolved, macroeconomic factors and corporate earnings have become more important than simple seasonality.

Key Risks Investors Should Watch in Early 2026

SCB CIO recommends using the January Effect in January 2026 only as a framework for understanding market sentiment, while actual investment should focus on volatility management and fundamentals.

Political Pressure on Federal Reserve Independence

Early 2026 sees scheduled personnel changes at key Federal Reserve positions:

• January 21: Potential nomination of successor to Fed Vice Chair Cook, depending on court ruling
• February 28: Retirement of Atlanta Fed President Bostic
• May: Expiration of Fed Chair Powell's term

President Trump is likely to nominate dovish-leaning individuals, which could undermine Fed independence. While SCB CIO expects the Fed to cut rates at least once during 2026, political pressure could create upward pressure on long-term Treasury yields.

Trade Policy Uncertainty

The U.S. Supreme Court is expected to rule on tariff authority under the International Emergency Economic Powers Act (IEEPA). If this authority is constrained, the administration may resort to other trade policy tools, adding uncertainty to the trade policy framework.

Volatility Management and Fundamental Investing Are the Answer [AI Analysis]

The key to 2026 investment strategy is not relying on seasonal patterns like the January Effect, but managing substantive risk factors.

In the short term, Fed personnel changes and trade policy uncertainty could heighten market volatility. Concerns about undermining Fed independence in particular could drive long-term rates higher, potentially necessitating duration adjustments in bond portfolios.

Over the medium to long term, AI investment and corporate earnings will likely be the primary drivers of returns. The AI theme still possesses strong growth potential, and as long as earnings provide support, investment appeal is likely to remain high.

Asian markets, particularly South Korea and Japan, may continue positive momentum centered on technology stocks, but exposure to global macroeconomic variables means diversification and risk management remain crucial.