Global markets experienced a dynamic start to the year, marked by robust US economic data and geopolitical tension. Employment data continued to be strong as payrolls came in above expectations and the unemployment rate dropped. Core inflation also came in below expectations as shelter costs cool. The S&P 500 delivered a solid 2.8% monthly return even with the threat of substantial tariffs on imports from Canada, Mexico, and China. In the technology sector, Chinese AI startup DeepSeek introduced a cost-effective model that challenges major competitors, contributing to a slight tech industry sell-off. European equities demonstrated resilience, even amid Eurozone economic stagnation and the ECB (among other central banks) chose to continue to cut rates in January. The Federal Reserve, however, elected to keep their benchmark rate unchanged at 4.25-4.5% even with pressure from the White House to lower rates. Chair Powell reiterated that the Fed would remain apolitical as they continue to focus on bringing inflation down to more normal levels.

As highlighted in Pathstone’s 2025 Investment Outlook, we anticipate positive if slightly uneven global economic growth in 2025, led by the U.S. economy.  Investors are sharpening their focus on the new U.S. administration’s proposed fiscal, immigration, regulatory, and trade policies. The impacts of these policies, as well as military tensions across borders, will be watched closely for signs that the drivers of economic growth could be stymied.