Developed market (DM) equities bounced back from the December wobble with a strong start to the year (MSCI World Index +3.6% MoM). However, after two years of equity markets being led by US mega-cap tech shares, the shape of January returns was different, with European stocks (EuroStoxx 50 +8% MoM) outperforming their US counterparts (S&P 500 +2.8% MoM) and value stocks (Russell 1000 Value +4.6% MoM) outperforming growth stocks (Russell 1000 Growth +2% MoM). At the sector level, S&P 500 healthcare stocks (+6.8% MoM) were amongst the leaders in January after lagging during 2024 (+2.6% YoY) and 2023 (+2.1% YoY). US banks were amongst the star performers in January (JP Morgan +12% MoM, Citigroup +15% MoM), buoyed by the release of strong 4Q24 earnings. By the end of January, around one-third of S&P 500 companies had reported 4Q24 earnings, which, in aggregate, were c. 6% ahead of consensus expectations.
The underperformance of the US mega-cap tech cohort was partially a function of the announcement that a Chinese hedge fund owner, Liang Wenfeng, had funded the development of an Artificial Intelligence (AI) model, DeepSeek, to replicate the performance of OpenAI. This was reportedly done at a fraction of the cost and without access to the powerful chips produced by Nvidia that have fuelled the US’s AI revolution. The announcement introduced some uncertainty around investor assumptions about the sustainability of super profits for the likes of Nvidia (-11% MoM) and the returns on billions of dollars of AI capex by US mega-cap tech companies. Emerging markets (EMs) had a decent start to the year (MSCI EM +1.8% MoM).
January marked the inauguration of the new US administration, with President Donald Trump swiftly implementing a slew of executive orders. CNN reported that Trump had issued 66 executive orders by the end of January (his first 12 days in office). For context, the Office of Federal Register (OFR) published 220 executive orders in Trump’s first four-year term, including 55 executive orders in his first year. In comparison, President Joe Biden signed 162 executive orders during his four-year term in the White House (77 of them in his first year).
Investors anticipating some inflationary policy from the new US administration had pushed the US government’s 10-year borrowing rate to 4.8% p.a. at the start of January (the highest level since 2023) before the latest US inflation data showed the inflation rate was falling slightly faster than expected. Despite the better-than-anticipated US inflation print, the US Federal Reserve (Fed) decided against another rate cut in its January meeting, maintaining a relatively conservative outlook on further rate cuts – in line with consensus expectations. US 10-year bond yields ultimately ended January unchanged at 4.5%. The US dollar also ended the month largely unchanged (US Dollar Index -0.1% MoM).
