As we step into February, let’s take a moment to look back at the key highlights from January and how they’ve shaped the market outlook for the coming months. It’s been a month of growth, volatility, and some mixed signals in the economic landscape, so here’s a quick update to keep you informed.

 

 

The 2023 market was driven largely by the “Mag Seven” tech giants, but 2024 showed broader participation across sectors, pushing the market upwards. This widening market breadth is often a good sign for stock investors, suggesting that more sectors are contributing to growth. With the Federal Reserve’s hawkish stance on interest rates beginning to soften, value stocks could start to shine, too. That said, it’s important to remember that 2025 is likely to bring more volatility, so staying adaptable is key.

 

 

Technology, especially AI, continues to be the major market driver. But let’s pause and reflect on how high valuations have climbed. In fact, AI could be one of the biggest technological shifts we’ll see, but as with any breakthrough innovation, these stocks can be extremely volatile. While we’re optimistic about the future potential of AI, the market’s excitement means caution is needed, especially when it comes to pricing.

 

 

 

The December payroll numbers were impressive, with the U.S. adding 256,000 jobs—far surpassing expectations of 165,000. The unemployment rate dropped, and underemployment saw slight improvement. However, wage growth is slowing, with hourly earnings showing stagnation. The Fed is keeping a close eye on these numbers, and with such strong employment figures, interest rate cuts aren’t likely anytime soon. As of now, there’s a 74% chance that the Fed will keep rates steady after their March meeting.

 

January also saw a rise in jobless claims, which is worth noting. While increases like this are usually concerning, it’s reassuring that the overall numbers still appear healthy.

 

 

The U.S. economy is performing better than expected. While GDP growth was initially forecasted at under 2%, it looks like it’s heading toward 2.6%. Similarly, personal consumption was expected to drop by 1.5%, but it’s instead grown by 3%. Despite this positive growth, January saw significant volatility in the stock market, especially within the tech sector. Research firm Vicars, which analyzes sell-to-buy ratios, highlighted a surge in sell-offs, particularly from 2024’s top gainers. But this kind of volatility isn’t a reason to abandon the market—keeping a long-term perspective remains crucial.

 

 

The bond market’s behavior in 2024 was interesting. Typically, rising interest rates lead to a decline in long-term rates, but we saw the opposite. Short-term interest rates instruments increased in 2024, but long-term instruments declined, which goes against textbook interest rate theories during rising rate periods.  What does demonstrate is expectations, not just objective data, play a role in valuations.

 

 

The Federal Reserve met in January and, as expected, held interest rates steady. They noted that while inflation is still somewhat elevated, labor market conditions remain solid. Looking back, it’s striking that four years after the 2020 stimulus, inflation is still above the Fed’s 2% target. In fact, inflation came in at 2.9% in January, significantly lower than the peak of 2022 but still above target.

 

Oil prices, another key factor to watch, are hovering around $76 per barrel, well below the $90 range we’ve seen in recent months.

 

 

In late January, the market experienced a sharp selloff in the tech sector, particularly in AI stocks. The introduction of China’s DeepSeek AI, which demonstrated more efficiency than expected, raised questions about the true energy demands of AI—and whether some of these stocks have become overvalued. The selloff caused volatility, with the VIX volatility index spiking, but by the end of January, the major tech stocks had largely recovered.

 

 

Despite a strong stock market and cooling inflation, some sectors are still struggling. January saw 686 U.S. companies file for bankruptcy—an 8% increase over last year and the highest number since 2010. This highlights that while the economy is growing, there are still pockets of weakness, especially among businesses dealing with high inflation and interest rates.

 

 

Looking to the future, Nvidia’s CEO Jensen Huang projected trillions of dollars in opportunities for AI—not just in chips but also in robotics and self-driving cars. And there’s also major movement on AI infrastructure, with the Trump administration planning a $500 billion investment in AI and relaxing regulations to boost the industry. This is an exciting development, but it’s important to watch how these technological shifts unfold.

 

 

The tragic wildfires in California during January have caused unprecedented damage, with estimates around $150 billion in costs. Natural disasters are reminders of the unpredictable factors that can influence both the economy and markets.

 

 

Dow: +4.2%

S&P 500: +2.7%

Nasdaq: +1.6%

 

 

January 2025 has been a month of mixed signals: some positive economic data, strong job numbers, and market volatility, particularly in tech. While we’re seeing broader market participation, especially with tech and AI stocks, there’s also caution surrounding high valuations and the potential for volatility. The key is to stay balanced—holding onto long-term goals while being flexible enough to adjust to short-term market movements.

 

As always, we’re here to help you navigate these developments and ensure your investment strategy is aligned with your goals. Feel free to reach out with any questions or for a deeper discussion on your portfolio.

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