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.
Key Takeaways
- Market News: The new year started off with a bang with strong job creation, moderating services inflation, and resilient consumer spending driving market confidence. The S&P 500 delivering a solid 2.8% monthly return amid complex geopolitical and fiscal transitions.
- Tariffs: President Trump announced new tariffs on imports from Canada (25%), Mexico (25%), and China (10%). Global markets reacted negatively, with US equities selling off on the last day of the month on the news. The US dollar strengthened against affected currencies. Canada and Mexico have announced potential retaliatory measures if the US goes through with this proposal, while China plans to file a WTO lawsuit.
- AI: Chinese AI startup DeepSeek’s R1 model launched at a fraction of the cost with performance comparable to OpenAI and Meta models. The Tech sector was the only major US industry with negative performance for the month as many of these names sold off in the face of cheap competition abroad.
- European Market Resilience: European equities delivered an impressive 6.9% monthly return, defying economic stagnation. Despite the Eurozone’s unexpected zero growth in Q4, investors found opportunities in sectors showing underlying strength and potential economic stabilization as the ECB cut rates again in January.
You cannot invest directly in an index; therefore, performance returns do not reflect any management fees. Returns of the indices include the reinvestment of all dividends and income, as reported by the commercial databases involved. Returns over one year have been annualized.
Source — Bloomberg, Morningstar, treasury.gov. S&P Dow Jones Indices.
Disclosures
Past Performance Is No Guarantee of Future Performance. Any opinions expressed are current only as of the time made and are subject to change without notice. This report may include estimates, projections or other forward looking statements, however, due to numerous factors, actual events may differ substantially from those presented. The graphs and tables making up this report have been based on unaudited, third-party data and performance information provided to us by one or more commercial databases. Additionally, please be aware that past performance is not a guide to the future performance of any manager or strategy, and that the performance results and historical information provided displayed herein may have been adversely or favorably impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be inferred that these results are indicative of the future performance of any strategy, index, fund, manager or group of managers. While we believe this information to be reliable, Pathstone bears no responsibility whatsoever for any errors or omissions. Index benchmarks contained in this report are provided so that performance can be compared with the performance of well-known and widely recognized indices. Index results assume the re-investment of all dividends and interest. Moreover, the information provided is not intended to be, and should not be construed as, investment, legal or tax advice. Nothing contained herein should be construed as a recommendation or advice to purchase or sell any security, investment, or portfolio allocation. Any investment advice provided by Pathstone is client specific based on each clients’ risk tolerance and investment objectives. This presentation is not meant as a general guide to investing, or as a source of any specific investment recommendations, and makes no implied or express recommendations concerning the manner in which any client’s accounts should or would be handled, as appropriate investment decisions depend upon the client’s specific investment objectives.
U.S. Large Cap Equity is represented by the S&P 500 Index. U.S. Small Cap Equity is represented by the Russell 2000 Index. Developed Non-U.S. Equity is represented by the MSCI EAFE Index. Emerging Market Equity is represented by the MSCI EM Index. Real Estate is represented by the FTSE NAREIT Index. Infrastructure is represented by the FTSE Global Core Infrastructure 50/50 Index. U.S. High Yield Debt is represented by the Bloomberg Barclays U.S. Corporate High Yield Index. Emerging Market Debt is represented by the Bloomberg EM USD Aggregate Index. U.S. Aggregate Bonds is represented by the Bloomberg Barclays U.S. Aggregate Bond Index. U.S. Treasuries is represented by the Bloomberg Barclays U.S. Treasury Index. U.S. Municipal Bonds is represented by the Bloomberg Barclays Municipal 1-10yr Index.
