January 2025 proved to be a turbulent month for the stock markets, as investors navigated concerns over persistent inflation, a hawkish Federal Reserve, the return of a Trump administration, and disruptive technological developments from China. With so many factors at play, pinpointing the primary market driver was challenging.
Economic data painted a mixed picture – while housing and the labor market showed resilience, consumer sentiment, GDP, and inflation indicators (CPI and PPI) weighed on investor confidence. Meanwhile, corporate earnings season was underway, with 36% of S&P 500 companies reporting by month-end; 77% exceeded EPS expectations, and 63% delivered positive revenue surprises.
The month concluded with high drama as DeepSeek’s announcement erased nearly $1 trillion from NASDAQ on the last Monday. Then, on the final day, President Trump introduced substantial tariff proposals targeting China, Mexico, and Canada. It was, undeniably, a busy month.
For the month of January:
The DJIA advanced 5.1%;
The S&P 500 gained 2.9%;
NASDAQ moved up 1.8%; and
The Russell 2000 added 2.5%.
In addition, performance in developed markets outside the U.S. in November was good too, as only 9 of the 41 developed markets tracked by MSCI
declined. But performance in the emerging markets tracked by MSCI was significantly worse, with 39 of those 46 indices declining.
Volatility, as measured by the VIX, decreased by about 8% over the entire month, although there were at least four significant spikes, occurring weekly.
West Texas Intermediate crude was mostly flat this month, adding 68 cents and coming to rest at $73.81/barrel, although it was closer to $79/barrel mid-month.
Market Performance Around the World
Investors looking outside the U.S. saw good performance, as 32 of the 41 developed markets tracked by MSCI advanced this month, with 7 of the 9 that declined losing less than 1%.
Performance for emerging markets was so much worse, as 39 of those 46 indices retreated for the month, with a shocking 20 losing more than 5%.
Index Returns | January 2025 |
MSCI EAFE | +0.54% |
MSCI EURO | +0.76% |
MSCI FAR EAST | +2.93% |
MSCI G7 INDEX | +1.34% |
MSCI NORTH AMERICA | +1.36% |
MSCI PACIFIC | +1.89% |
MSCI PACIFIC EX-JAPAN | -3.49% |
MSCI WORLD | +1.14% |
MSCI WORLD ex USA | +0.38% |
Source: MSCI. Past performance cannot guarantee future results
Sector Performance Was Very Good
In January, the S&P 500 sectors performed strongly, with 10 out of 11 advancing and four gaining over 5%. This was a stark contrast to December, when performance was weak – 8 out of 11 sectors declined, including three that dropped around 10%, entering contraction territory. Interestingly, this pattern also held for the previous two months: November saw 9 of 11 sectors rise, while October witnessed 8 of 11 retreat. Hopefully, February will break this cycle.
On a relative basis, January saw 10 of the 11 sectors advance, whereas December had 9 sectors decline, and November experienced broad strength, with all 11 sectors outperforming October’s levels.
Additionally, there were some notable shifts in sector performance. For example, Materials rebounded from an 11% decline in December to a 6% gain in January – a clear display of volatility.
Finally, the range in sector returns remained substantial. Information Technology fell nearly 4%, while Communication Services surged more than 8%, highlighting the significant dispersion in just one month.
Here are the sector returns for the month of January and December (two very short time-periods):
S&P 500 Sector | December 2024 | January 2025 |
Information Technology | +2.18% | -3.94% |
Energy | -10.76% | +3.38% |
Health Care | -6.58% | +6.86% |
Real Estate | -9.83% | +2.51% |
Consumer Staples | -5.37% | +2.01% |
Consumer Discretionary | +3.35% | +3.37% |
Industrials | -7.98% | +4.85% |
Financials | -5.65% | +6.47% |
Materials | -11.22% | +5.90% |
Communication Services | +4.25% | +8.18% |
Utilities | -7.95% | +2.73% |
Source: FMR
Real GDP Up 2.3% in 4th Quarter
Real gross domestic product (GDP) increased at an annual rate of 2.3% in the fourth quarter of 2024 (October, November, and December), according to the advance estimate released by the U.S. Bureau of Economic Analysis. In the third quarter, real GDP increased 3.1%.
The increase in real GDP in the fourth quarter primarily reflected increases in consumer spending and government spending that were partly offset by a decrease in investment. Imports, which are a subtraction in the calculation of GDP, decreased.
Consumer Price Index Up 0.4%
The Consumer Price Index for All Urban Consumers increased 0.4% on a seasonally adjusted basis in December, after rising 0.3% in November, the U.S. Bureau of Labor Statistics reported. Over the last 12 months, the all items index increased 2.9% before seasonal adjustment.
The index for energy rose 2.6% in December, accounting for over 40% of the monthly all items increase. The gasoline index increased 4.4% over the month. The index for food also increased in December, rising 0.3% as both the index for food at home and the index for food away from home increased 0.3% each.
The index for all items less food and energy rose 0.2% in December, after increasing 0.3% in each of the previous 4 months. Indexes that increased in December include shelter, airline fares, used cars and trucks, new vehicles, motor vehicle insurance, and medical care. The indexes for personal care, communication, and alcoholic beverages were among the few major indexes that decreased over the month.
The all items index rose 2.9% for the 12 months ending December, after rising 2.7% over the 12 months ending November. The all items less food and energy index rose 3.2% over the last 12 months. The energy index decreased 0.5% for the 12 months ending December. The food index increased 2.5% over the last year.
Fed’s Preferred Inflation Gauge Up
The Producer Price Index for final demand advanced 0.2% in December, seasonally adjusted, the U.S. Bureau of Labor Statistics reported. Final demand prices rose 0.4% in November and 0.2% in October.
On an unadjusted basis, the index for final demand increased 3.35 in 2024 after moving up 1.1% in 2023. The December rise in prices for final demand can be traced to a 0.6% advance in the index for final demand goods. Prices for final demand services were unchanged. The index for final demand less foods, energy, and trade services edged up 0.1% in December, the same as in November. Prices for final demand less foods, energy, and trade services rose 3.3% in 2024 after advancing 2.7% in 2023.
Consumer Confidence Down in January
The Conference Board Consumer Confidence Index declined by 5.4 points in January to 104.1 (1985=100). December’s reading was revised up by 4.8 points to 109.5 but was still down 3.3 points from the previous month.
· The Present Situation Index – based on consumers’ assessment of current business and labor market conditions – fell sharply in January, dropping 9.7 points to 134.3.
· The Expectations Index – based on consumers’ short-term outlook for income, business, and labor market conditions – fell 2.6 points to 83.9, but remained above the threshold of 80 that usually signals a recession ahead.
“Consumer confidence has been moving sideways in a relatively stable, narrow range since 2022. January was no exception. The Index weakened for a second straight month, but still remained in that range, even if in the lower part. All five components of the Index deteriorated but consumers’ assessments of the present situation experienced the largest decline. Notably, views of current labor market conditions fell for the first time since September, while assessments of business conditions weakened for the second month in a row. Meanwhile, consumers were also less optimistic about future business conditions and, to a lesser extent, income. The return of pessimism about future employment prospects seen in December was confirmed in January.”
Existing Home Sales Hit 10-Month High
Existing-home sales climbed in December, according to the National Association of Realtors. Sales advanced in three major U.S. regions and slipped in the Midwest. Year-over-year, sales accelerated in all four regions.
On an annual basis, existing-home sales (4.06 million) declined to the lowest level since 1995, while the median price reached a record high of $407,500 in 2024.
Total existing home sales – completed transactions that include single-family homes, townhomes, condominiums and co-ops – elevated 2.2% from November to a seasonally adjusted annual rate of 4.24 million in December. Year-over-year, sales swelled 9.3%.
"Home sales in the final months of the year showed solid recovery despite elevated mortgage rates. Home sales during the winter are typically softer than the spring and summer, but momentum is rising with sales climbing year-over-year for three straight months. Consumers clearly understand the long-term benefits of homeownership. Job and wage gains, along with increased inventory, are positively impacting the market."
Leading Economic Index Inches Down
The Conference Board Leading Economic Index for the US inched down by 0.1% in December 2024 to 101.6 (2016=100), after an upwardly revised increase of 0.4% in November. The LEI declined by 1.3% over the second half of 2024, slightly less than its 1.7% decline over the first half of the last year.
The LEI pulled back slightly in December 2024 after November’s upwardly revised gain
“The Index fell slightly in December failing to sustain November’s increase. Low consumer confidence about future business conditions, still relatively weak manufacturing orders, an increase in initial claims for unemployment, and a decline in building permits contributed to the decline. Still, half of the 10 components of the index contributed positively in December. Moreover, the LEI’s six-month and twelve-month growth rates were less negative, signaling fewer headwinds to US economic activity ahead. Nonetheless, we expect growth momentum to remain strong to start the year and US real GDP to expand by 2.3% in 2025.”
Trade Deficit Up
The U.S. Census Bureau announced the following international trade, wholesale inventories, and retail inventories advance statistics for December 2024:
Advance International Trade in Goods The international trade deficit was $122.1 billion in December, up $18.6 billion from $103.5 billion in November. Exports of goods for December were $167.5 billion, $7.8 billion less than November exports. Imports of goods for December were $289.6 billion, $10.8 billion more than November imports.
Advance Wholesale Inventories Wholesale inventories for December were estimated at an end-of-month level of $898.0 billion, down 0.5% from November 2024, and were down 0.1% from December 2023.
Advance Retail Inventories Retail inventories for December were estimated at an end-of-month level of $823.3 billion, down 0.3% from November 2024, and were up 5.7% from December 2023.
Author: FMeX
Published: 2/6/2025
Sources: conference-board.org; nar.realtor; bls.gov; bea.gov; fidelity.com; msci.com; nasdaq.com; wsj.com; morningstar.com
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