Market Performance

Market performance in January is generally perceived to give an indication of market direction for the rest of the year, to quote, ‘so goes January, so goes the year.’ And if January 2025 is an accurate barometer, we are looking at a potentially volatile 2025. 

US markets ended the first month of 2025 on a positive note, with the S&P 500 gaining 2.7%, the Nasdaq higher by 1.6%, and the Dow Jones outshining both, ending the month higher by 4.7%. Economic data for the month saw US December headline inflation (CPI) rising 2.9% YoY, with core CPI (ex-food and energy), printing up at 3.2% YoY. The Fed kept rates unchanged at its January 2025 meeting.

The FTSE closed up by 6.1% for January to reach a record high, with UK inflation for December printing unexpectedly lower at 2.5% YoY from the November print of 2.6% YoY and core inflation also printing lower at 3.2% for December compared to the 3.5% November 2024 print. The Bank of England was expected to cut interest rates by a further 25bps at its February 2025 meeting, which would be the third cut since the start of the cutting cycle in August 2024.

Despite fears of the impact of President Trump’s tariffs threats, European markets fared better on a performance basis relative to their US counterparts, with the Dax closing the month higher by 9.2%, and the Cac up 7.7% for the month, with the most significant stock rotation into European defensive and growth equities in lieu of US equities in 10 years. Eurozone headline inflation for December rose for the third month in a row, printing at 2.4% YoY compared to November’s 2.2% YoY, with core inflation holding at 2.7% for the fourth consecutive month. Unlike its US counterpart, the ECB cut rates for the fifth time since June 2024, by 25bps, taking its benchmark rate to 2.75%.

In contrast, Asian markets ended the month mixed. The Hang Seng closed higher by 0.8%, while the Shanghai Composite ended lower by 3%. Though China achieved its 2024 growth target of 5%, this continues to be stymied by structural issues characterised by low consumer spending, continued high debt among property developers and local government, while simultaneously challenged by an aging population. Chinese inflation slowed to 0.1% in December YoY vs the November print of 0.2%, while the core inflation number printed slightly higher at 0.4% vs the November print of 0.3%. 

The Japanese market also ended the month lower by 0.8%, while the Bank of Japan (BoJ) raised its key interest rate by 25bps to 0.5% from 0.25%, with the rhetoric emerging from the bank that inflation was holding at a desirable target level. Recent economic data showed Japanese inflation hovering around the BoJ’s target rate of 2%.