Trust Investment Management
Inflation concerns, fears of a more hawkish Fed, the DeepSeek selloff, and uncertainty over the new administration’s tariffs and deportation plans were among the contributing factors to the heightened volatility in January. Even so, the markets managed to recover and close higher.
U.S. equity markets faced a challenging January yet managed to end on a positive note. DeepSeek sparked a selloff in AI centric stocks, putting a strain on the S&P 500 index. Interestingly, the S&P 500 equal-weighted index outperformed its market cap-weighed counterpart by 72 basis points for the month which suggested that the rally is broadening out.
Developed international provided robust returns for the month and outperformed emerging markets by a healthy margin. The European Central Bank (ECB) supplied a tailwind for developed international stocks as they continued to cut rates by 25 basis points in an effort to support their economy.
Fixed income retreated after a better than expected jobs report. Many saw this as a signal that inflation would also post higher later in the month. However, the Consumer Price Index (CPI) was in line with expectations, which eased concerns and contributed to the bond market’s buoyancy.
As expected, the Fed did not lower rates in January. The unemployment rate ticked lower to 4.1% while inflation remained elevated above the Feds target. The Fed has a dual mandate (price stability, and maximum sustainable employment). With a solid labor market and persistent inflation, the Fed has the flexibility to slow the pace of rate cuts. Still, there is some concern that the Fed will keep rates elevated above the neutral rate for too long.
The growth projections for the U.S. economy increased to 2.7% for 2025, according to the latest figures from The International Monetary Fund (IMF). The upward revision for the U.S. offset the downward revisions in other countries. As such, the IMF global growth forecast remained unchanged at 3.3% for 2025.
