The Pinnacle: January 2025
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January Markets
January 2025 witnessed notable developments across global financial markets, with major indices reflecting varied performances influenced by economic data, corporate earnings, and geopolitical events. This review provides an overview of the key market movements during the month, focusing on the performance of major indices.
US Markets
In January, U.S. equities exhibited good results. The S&P 500 Index advanced by around 2.8%, driven by strong corporate earnings and positive economic indicators. The Nasdaq 100 came in with a 2.3% increase for the month. This strong return is despite some concern towards the end of the month for technology stocks following news of emerging competition in the AI sector. Industrials as well as small and mid-caps were standout performers over the month, with the Dow Jones Industrial Average, S&P Midcap 400, and the Russell 3000 up 4.8%, 3.8%, and 3.2% respectively over the month.
Eurozone
European markets outperformed their global counterparts in January. The MSCI Europe Ex-UK Index ended the month with an overall gain of 7.1%. The STOXX 600 also performed well, up 6.3% for the month, its best monthly performance since November 2023. This surge was amongst other factors, attributed to the European Central Bank (ECB) staying on course with an expected 25 basis point rate cut delivered in January. This comes with the hope of further easing economic pressure in the region.
UK Markets
The United Kingdom followed the upward trend seen in European markets as a whole. The FTSE All-Share Index closed the month with a gain of 5.5%, reflecting strong investor confidence. This positive momentum was partly driven by analysts' views that the region benefited from compelling valuations. Additionally, the UK’s performance was bolstered by expectations of higher growth compared to the wider European region. These factors combined to create a favourable environment for equities, contributing to the overall strength of the market.
Asia Emerging Markets
Emerging markets in Asia experienced mixed outcomes in January. While some economies benefited from strong domestic demand and favourable export conditions, others faced challenges due to geopolitical tensions and global trade uncertainties. This is emphasised with Chinese equities up-slightly, contributing to an overall return of 0.8% for the MSCI Asia ex-Japan index and a 1.8% gain for the MSCI Emerging Markets Index over the month. Indian equities, on the other hand, performed poorly, down 3.5% for the month.
Commodities
Commodities were one of the top performing asset classes in January, shown by a 4% rise in the Bloomberg Commodity Index. Gold and oil prices were two drivers of performance for the asset class. Tariff threats from US President, Donald Trump, introduced some market uncertainty, positively affecting the price of gold. Additionally, colder-than-usual winter weather across Europe placed upward pressure on oil demand, further supporting price increases.
January 2025 highlighted the dynamic nature of global financial markets, with regional performances influenced by a combination of economic indicators, corporate earnings, and geopolitical developments. While European markets demonstrated robust growth, US markets also presented a strong picture, and emerging markets in Asia faced varied outcomes. Commodities remained sensitive to global events, underscoring the importance of a diversified investment approach.
Trump – First Weeks in Office
Donald Trump's first weeks in office as the new President of the United States were marked by a flurry of executive actions and policy signals that set the tone for his administration's economic agenda. As markets and global observers assessed the implications of these early moves, several key themes emerged—including an aggressive stance on trade, a focus on deregulation, and significant shifts in fiscal policy.
Executive Orders and Deregulation Initiatives
One of Trump's earliest and most consequential moves was a sweeping executive order aimed at reducing federal regulations. Dubbed the "two-out, one-in" rule, this directive mandated that for every new regulation introduced, two existing regulations had to be eliminated. The rationale behind this order was to spur business investment by reducing bureaucratic hurdles, particularly in sectors like energy, manufacturing, and finance. Proponents argued that this deregulation would unlock growth and make American industries more competitive globally. Critics, however, voiced concerns about the potential erosion of environmental and consumer protections.
In addition to broad regulatory rollbacks, Trump specifically targeted the energy sector. By signing orders to advance projects like the Keystone XL and Dakota Access pipelines, the administration signalled its commitment to boosting fossil fuel industries. This move was welcomed by energy companies and investors anticipating increased production and job creation. However, environmental groups and some international partners viewed it as a step back from commitments to combat climate change.
Trade Policies and Tariffs
Trump’s "America First" trade policy was another hallmark of his initial weeks in office. The administration swiftly withdrew from the Trans-Pacific Partnership (TPP), signalling a shift away from multilateral trade agreements in favour of bilateral deals perceived to better protect American interests. This decision was lauded by those who believed the TPP disadvantaged American workers, but it also raised concerns about ceding influence in the Asia-Pacific region to competitors like China.
Trump also began laying the groundwork for imposing tariffs on key trading partners, though his administration introduced a 30-day delay before implementing any new measures. This pause coincided with the announcement of plans to renegotiate the North American Free Trade Agreement (NAFTA), aiming to reduce the US trade deficit and restore manufacturing jobs to American soil. Early discussions suggested potential tariffs on Mexican imports, which initially unsettled markets and fuelled concerns about possible retaliatory actions. However, the temporary delay provided a brief window for negotiation and market adjustment.
Fiscal Policies and Tax Reforms
On the fiscal front, Trump reiterated his campaign promises to enact substantial tax reforms. Proposals included lowering the corporate tax rate from 21% to 15%, simplifying individual tax brackets, and offering repatriation incentives for US companies holding profits overseas. These initiatives aimed to stimulate business investment, boost economic growth, and create jobs. The markets responded positively in anticipation of the pro-business policies put forward.
However, some concerns were expressed about the potential impact on the federal deficit. The combination of tax cuts and increased infrastructure spending, another cornerstone of Trump’s economic plan, risked widening the budget gap unless offset by corresponding reductions in government spending. The debate over balancing growth with fiscal responsibility became a central theme in economic discussions during these early weeks.
Market Reactions and Investor Sentiment
Financial markets largely reacted with optimism to Trump’s initial economic moves, interpreting them as pro-growth signals. The "Trump bump" after the election saw equities rally, particularly in sectors expected to benefit from deregulation and tax cuts, such as financial services, energy, and industrials. The promise of infrastructure spending also buoyed construction and materials stocks.
At the same time, bond markets exhibited caution. Concerns over potential inflationary pressures from fiscal stimulus and protectionist trade policies led to rising yields on U.S. Treasury bonds. The US Federal Reserve (Fed), is no doubt closely monitoring developments, faced by the challenge of adjusting its monetary policy to balance growth and inflation in a different environment to previous years
In summary, Donald Trump’s first weeks in office were characterised by decisive actions that underscored his administration’s commitment to reshaping the US economic landscape. While the long-term effects of these policies remained uncertain, the initial response from markets and businesses reflected a mix of optimism and caution. Deregulation and tax reforms has the potential to be beneficial to certain sectors, while trade policies and fiscal measures pose potential risks. As the administration continues to implement its agenda, the global economic community will watch closely to gauge the balance between growth opportunities and emerging challenges.
Sources
European stock markets outpace global rivals in January – Financial Times (January 31, 2025)
FTSE 100 reaches another record high – The Times (January 31, 2025)
Britain’s FTSE 100 set for worst day in nearly 4 months after Trump’s tariffs roil markets – Reuters (February 3, 2025)
January 2025 Global Market Index Performance – Angeles Investments (January 31, 2025)
""SPDR Gold Shares (GLD) and United States Oil Fund (USO) Performance Data," Financial Data Provider, January 31, 2025.