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The Quick Facts

• A rollercoaster January, with one all-time closing high for the S&P 500 followed by a sharp selloff triggered by the release of a new Chinese AI model.
• The S&P 500 concluded the month with a 2.8% gain.
• Whereas the Magnificent 7 accounted for more than 50% of the 2024 S&P 500 total return, they declined in January as a group.
• Earnings are coming in stronger than expected and forecasted to set new records in 4Q 2024 and 2025.
• Non-U.S. equities were a mixed bag with Europe, Australasia, and the Far East (EAFE) up 5.3%, ahead of U.S. Large Caps, but Emerging Markets (EM) lagging with just 1.8% return.
• The Federal Reserve (Fed) took no January action with the next cut now expected in June.
• Strong economic data and the uncertainty over how President Trump’s policies on tariffs, immigration, budget deficits and regulation help justify the Fed’s wait-and-see approach.

January was a rollercoaster month, marked by an all-time closing high for the S&P 500, which surpassed 6,100 for the first time. However, a sharp selloff followed after a new AI model by DeepSeek from China sent shockwaves through the market, raising concerns about lower capital expenditures on AI infrastructure. Despite this, the S&P 500 remained resilient, ending the month with a 2.8% gain.

Earnings have been stronger than expected and are forecasted to set new records in Q4 2024 and 2025. The Magnificent 7, which accounted for more than 50% of the S&P 500’s total return in 2024, reversed their overperformance in January, declining as a group.

Gold saw a significant rise, closing at $2,798 per ounce, up 6.6%. Bitcoin also gained, reaching $102,110, up 9.0%. Interest rates declined slightly, with the 10-year U.S. Treasury yield closing at 4.54%, down 3 basis points, as the Federal Reserve took no action in January, with the next rate cut expected in June.

January Asset Class Performance

In January, ten out of the eleven Global Industry Classification Standard (GICS) sectors posted gains, with Technology being the only sector to decline (-0.7%). Leading sectors included Healthcare (+6.8%), Financials (+6.5%), and Communication Services (+5.8%).

Value stocks outperformed Growth stocks, with the Russell 1000 Growth Index rising 2.0% in January (+32.7% over the last twelve months) compared to a 4.6% increase for the Russell 1000 Value Index (+19.5% over the last twelve months). Over the past three years, the Large Cap Value Index has lagged behind the Large Cap Growth Index by 24.2%. The Russell 2000 Index, a key measure of smaller companies, also had a strong start to the year with a 2.6% return in January. The ESG segment, as measured by the MSCI USA ESG Select Index, rose 2.4% in January, trailing the S&P 500 by 40 basis points. Over the past three years, the ESG index increased by 32.3%, lagging the S&P 500 by 7.8%.

Non-U.S. equities had mixed results, with the EAFE Index up 5.3%, outperforming U.S. Large Caps, while the EM Index rose just 1.8%, 100 basis points behind the S&P 500. Over the past three years, both EM and EAFE significantly underperformed the S&P 500, with underperformance of -44.7% and -21.8%, respectively.

At its January 29 meeting, the Fed left interest rates unchanged at 4.25%-4.50%, as expected. Fed Chair Jerome Powell indicated that the Fed plans to maintain these rates for the foreseeable future, with the market anticipating the next rate cut in June. Strong economic data and uncertainty over President Trump’s policies on tariffs, immigration, budget deficits, and regulation help justify the Fed’s wait-and-see approach.

The 10-year U.S. Treasury closed January at 4.54% vs. 4.57% at the end of December 2024, 3.88% at the end of December 2023, and from a peak of 4.99% in October 2023. Shorter-term 2-year U.S. Treasury closed January at 4.20% vs. 4.24% at the end of 2024. The 2-year and 10-year Treasury yield curve dis-inverted in September 2024 and steepened since then, with the 10-year yield now 34 basis points higher than the 2-year yield. The U.S. Aggregate bond index was up 0.5% in January. The Municipal Bond Index was also up 0.5% in January, while U.S. Corporate Investment Grade and U.S. High Yield closed January up 0.6% and 1.4%, respectively.

The CBOE Volatility Index (VIX), Wall Street’s fear gauge, briefly spiked to 22.5 on January 27 with the DeepSeek “Sputnik moment” scare. Semiconductor investors, suddenly fearing that far less hardware might ultimately be needed to power the AI revolution than previously assumed, took a “sell-first-ask-questions-later” approach, and triggered the biggest single-day market cap loss in history with Nvidia experiencing a massive drop of nearly $600 billion (-17%) in value. According to a research paper by Neuberger Berman, DeepSeek’s latest model was trained on just 2,000 H800 Nvidia GPU chips, at a total cost of around $5 million—roughly 1/20th of the $100 million it reportedly cost to train OpenAI’s models. If DeepSeek’s claims hold true, this could lead to lower capital costs, wider AI adoption, and greater efficiency across industries.

The VIX closed January at 16.4, below its post-Great Financial Crisis average of 18.5. Bond market volatility, measured by the BofA MOVE Index, traded in a tight range, with the index closing January at 91.8 vs. 107.3 a year ago. Gold had a strong start to the year with a 6.6% return in January, closing at $2,798/Oz. This represents a significant rise, reflecting ongoing economic uncertainties. Oil futures, as measured by the WTI Crude Oil $/bbl., were up a more modest 1.1% in January to $72.5/bbl. The U.S. Dollar Index, which indicates the general international value of the U.S. Dollar, was slightly down in January (-0.1%), but remains up 4.9% over the last 12 months. Bitcoin rose 9.0% in January, while Ethereum declined by 0.8%.

The January barometer, which suggests that “as January goes, so goes the year,” has been accurate 70.8% of the time since 1929, according to S&P Global data.

Chart of the Month – Real QoQ GDP, % – Blue Chip Forecast

Measuring the economy in real-time is notoriously difficult because data are backward-looking and often revised, leading to frequent inaccuracies in economic forecasts.

The Blue Chip Economic Indicators is a monthly survey and publication by Wolters Kluwer that collects macroeconomic forecasts related to the U.S. economy. The survey compiles predictions from over 50 top economists from major financial institutions, corporations, and research organizations. While each forecaster’s projections are reported, the average of all projections, known as the consensus estimate, receives the most attention.

The Blue Chip Economic Indicators report is a widely respected publication. Policymakers, businesses, and investors use these forecasts to make informed decisions about the future economic environment.

The monthly publication schedule allows for timely adjustments based on the latest economic data and trends, helping to maintain the relevance and accuracy of the forecasts.

Quote of the Month

“GDP is a function of capital, labour and how productively you use both.” – Gita Gopinath, Economist

Major Asset Class Dashboard

Curated by Julien Frazzo, Deputy Chief Investment Officer and Michael G. Dow, CAIA, CFA®, Chief Investment Officer

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