FRS January Insights
2025 has started with significant change and speculation for the future. A new president was inaugurated, and with that the policies that have been campaigned on for the past several years. It is never clear what will happen, but we do believe deregulation, potential tax cuts, and certain tariffs against multiple trade partners are highly likely. How these will impact our economy and markets remains to be seen. The impact of AI developments in China appears to have spooked the tech sector in the short term but will ultimately be an opportunity over the next several years. We anticipate future growth in private markets and alternatives as we continue to see volatility in traditional asset classes. We will discuss these opportunities in our regular strategy sessions.
Across the equity markets, January started slowly, encountering a bit of volatility before recovering into the month end. Investors had a lot of news to digest from corporate announcements of year-end results to potential resolution of geopolitical issues. US interest rates bounced around some and as expected, the Fed held rates steady at their late January meeting, citing the need for a clearer picture of inflation and employment trends before any additional rate cuts will occur.
Here are a few observations about what occurred across the public markets during the month:
Overall
- The S&P 500 Index was up 2.8% in January and was up 26.4% in the trailing year.
- The MSCI ACWI ex-USA MSCI Index was up 4.0% in January and was up 10.9% in the trailing year.
- The Bloomberg Aggregate Bond Index was up 0.5% in January and was up 2.1% in the trailing year.
Domestic Equity
- US stock categories were positive across the board in January, with mixed results across size and style, reflecting more stock-specific drivers than one dominant positive theme.
- Large-cap value outperformed large-cap growth largely due to the weakness in select tech stocks. In the mid and small-caps, growth outperformed value. Increased market breadth led to the equal-weighted S&P 500 outperforming the cap-weighted by 0.72%.
International and Global Equities
- Overseas stocks outperformed US stocks despite the trade rhetoric from the new administration. The USD dollar weakened during the month, helping non-US stocks.
- Emerging market stocks lagged behind developed market stocks due to their greater sensitivity to US trade tariffs.
Fixed Income Markets
- Bonds delivered modest returns for the month as interest rates were largely range-bound and credit fundamentals remained strong.
Specialty Markets
- Commodities performed well despite a late-month collapse in natural gas prices. REITs recovered from a difficult December to deliver modest gains in the month.
US Equity Sectors
- Communication Services, Healthcare, and Financials were the top-performing sectors in January, illustrating the greater market breadth. The collapse in many AI stocks dragged down the Information Technology sector, the only negative-performing sector.