US Markets
Stocks rallied in January on upbeat Q4 corporate reports and solid economic news that quieted talk of an inflationary comeback.
The Dow Jones Industrial Average led, tacking on 4.7%.
The Standard & Poor’s 500 stock index picked up 2.7%while the Nasdaq Composite added 1.64%.1
New Year’s Fears
After a tech-led relief rally kicked off the New Year, markets then fell as a round of fresh economic data stoked inflationary fears.2
Investors also reacted to news that most Federal Open Market Committee members seemed concerned that inflation risks had increased, according to the minutes of the Fed’s December meeting.
Then, a warmer-than-expected December jobs report caused investors to question whether the Fed would adjust rates in 2025.3
Goldilocks Returns
However, stocks regained their momentum thanks to upbeat Q4 corporate reports and updated economic news that tamped down talk that inflation was a concern.
The “Goldilocks” narrative—an economy that’s neither too hot nor too cold—made a comeback.4
The Producer Price Index report showed that wholesale prices rose less than expected in December.
Then the December Consumer Price Index (CPI) report showed that core inflation (minus volatile energy and food prices) rose less than expected.5,6
Inauguration Enthusiasm
Following Inauguration Day, stocks resumed their rally as investors believed that a pro-business administration would also be good for financial markets.
Markets pushed higher as investors cheered a flurry of new policy announcements and executive orders.7,8
Honeymoon Rally Slows
However, by the final week of the month, tech stocks dragged the markets lower on news that a Chinese start-up had developed a competitive artificial intelligence (AI) model that performed as well as its Western counterparts at a fraction of the cost.
As the month came to a close, investors evaluated whether it was indeed a “black swan” event or just another development in the fast-moving world of AI.9
What Investors May Be Talking About in February
There is no Federal Open Market Committee (FOMC) meeting scheduled for February, so expect investors to watch economic reports closely as they try to discern the Fed’s thinking on inflation, tariffs, and the labor market.
Investors will also be paying close attention to the White House and its actions on both domestic and international fronts.
Much debate still swirls around the topic of tariffs and their impact on inflation.
Market watchers remind investors that markets are a forward-looking mechanism, meaning they may have already priced some of the tariff news.
However, in the month ahead, markets may continue to adjust as new policy positions are released.11
World Markets
The MSCI-EAFE Index rose 5.21%, led by solid gains throughout Europe.12
Germany added 9.16%, while France (+7.72%), Spain (+6.67%), and Italy (+6.69%) all posted solid gains.
The United Kingdom also had a strong month, picking up 6.13%.13
Elsewhere, Brazil (+4.87%) was a standout among emerging markets. On the Pacific Rim, Korea added 4.91%while Australia gained 4.57%. Notably, Japan’s Nikkei lagged, falling 0.81%.14
The Fed
As widely expected, the Federal Reserve voted to hold firm on interest rates at its January meeting, marking a new wait-and-see phase in monetary policy.
The Fed Funds Rate target range remains at 4.25-4.50%.25
Fed Chair Jerome Powell had been signaling for some time that the Fed would be moving to a more neutral monetary policy stance, citing the need to balance inflation and a cooling labor market. “From here, it’s a new phase, and we’re going to be cautious about further cuts,” he said.
Minutes released from the December FOMC meeting showed that some committee members were concerned about inflation risks.26
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1. WSJ.com, January 31, 2025
2. CNBC.com, January 3, 2025
3. CNBC.com, January 10, 2025
4. Advantage.FactSet.com, January 31, 2025
5. CNBC.com, January 14, 2025
6. WSJ.com, January 15, 2025
7. MarketWatch.com, January 21, 2025
8. CNBC.com, January 22, 2025
9. Investopedia.com, January 31, 2025
10. Sectorspdrs.com, January 31, 2025
11. Investopedia.com, January 31, 2025
12. MSCI.com, January 31, 2025
13. MSCI.com, January 31, 2025
14. MSCI.com, January 31, 2025
15. WSJ.com, January 30, 2025
16. WSJ.com, January 10, 2025
17. Reuters.com, January 16, 2025
18. KPMG.com, January 17, 2025
19. Eyehousing.org, January 17, 2025
20. WSJ.com, January 24, 2025
21. Realtor.com, January 24, 2025
22. Realtor.com, January 27, 2025
23. WSJ.com, January 15, 2025
24. Bankingjournal.aba.com, January 28, 2025
25. WSJ.com, January 29, 2025
26. CNBC.com, January 8, 2025
27. WalletHub.com, February 8, 2024
28. PRNewswire.com, February 8, 2024
29. Investopedia.com, September 19, 2024
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