Fast, Furious and Full of Surprises

January wasted no time shaking up the markets, squeezing a year’s worth of drama into just one month. The long-standing market playbook was flipped - Europe outshone the US, and value stocks took the lead over growth.

The big story? Trump’s return to the White House. His ‘America First’ policies fueled optimism in US equities, but the rise of Chinese AI giant DeepSeek raised fresh doubts about whether US tech can keep its dominance. Nvidia felt the heat, suffering a record-breaking $600 billion market cap wipeout on January 27.

Europe Leads: European equities soared powered by financials and consumer discretionary stocks. A stabilizing eurozone economy added fuel to the rally. UK stocks also shined boosted by a weaker sterling. If the economy remains resilient, Europe’s diversified market and relatively undervalued stocks could see further upside.

US Mixed: The S&P 500 gained 2.7%, supported by strong job growth and solid 2.3% GDP expansion. But tech struggled - DeepSeek’s AI breakthroughs sent shockwaves, questioning the US sector’s high valuations. While Trump’s tax cuts and deregulation may continue to fuel optimism, the tech sector’s concentration in the US makes it clear: a more diversified investment approach may be essential to balance out risks.

China, India Down: Chinese equities saw losses as Trump’s trade rhetoric remained in line with his campaign promises. While China’s market shows potential, its long-term growth hinges on how it navigates trade tensions, tech advancements, and domestic challenges. Meanwhile, India logged its fourth straight monthly decline due to valuation pressures and weaker earnings. While the short-term outlook remains gloomy, the long-term potential is still intact for those able to weather the volatility.

Japan Stalls: The Nikkei 225 was down by 0.8%, as a stronger yen weighed on its export-driven stocks. If the yen’s strength persists, it could continue to dampen investor’s sentiment toward Japan.

Mixed Earnings Season

The month of January saw a mixed performance to earnings season. Seven out of the eleven sectors showed year on year earnings growth for Q4, with 5 of these sectors experiencing double-digit growth namely Financials, Communication Services, Information Technology, Consumer Discretionary and Utilities. Alternatively, of the 4 sectors which experienced declines, the Energy and Industrials reported double-digit declines.

Trump 2.0 Drives Precious Metal Gains

Commodity markets saw strong and broad gains in January. Gold and Silver have benefited from the increased uncertainty caused by a wave of Trump announcements following his inauguration, including tariffs. The gold/silver ratio has seen a decline to 88.50 level but remains elevated making silver particularly attractive as an investment.

At Providentia, we are bullish on precious metals, as we believe this momentum is likely to continue. Central banks are likely to continue buying large volumes of gold and with investors also choosing to grow their exposures to safe-haven assets amid heightened geopolitical risks.

Oil moving sideways

WTI and Brent began the month by extending an ongoing rally, with prices hitting 6-months highs before reversing lower to end the month close to where they started. The prices began reversing lower after Trump declared a “national energy emergency” in order to unleash new oil and gas production across the nation.

Bitcoin’s Ride Continues

Bitcoin showcased its usual rollercoaster ride through the month, reclaiming its $100,000 mark before closing around $102,000 by the end of the month. With upcoming US regulatory announcements and broader economic concerns, volatility still prevails.

We believe that the tariffs imposed by the US could ultimately benefit bitcoin in the long term. Bitcoin could experience an increased adoption as a hedge against geopolitical risk, as economic uncertainty and protectionist policies have historically driven demand for decentralized and borderless assets.

Bond Market Jitters

January saw heightened volatility in bond markets, driven by policy expectations and inflation data. US

German Bunds declined, likely reflecting fiscal reform expectations, while UK Gilts faced stagflation fears, briefly pushing 10-year yields to their highest since 2008 before rebounding on softer inflation data.

Central banks remained active - Japan’s BoJ raised rates by 25bps to 0.50% and revised inflation forecasts, while the ECB cut its main refinancing rate for a fourth consecutive time to 2.90%. The Fed, after 100bps of prior cuts, held rates steady.

Yields remain attractive relative to post-2008 levels, but uncertainty lingers amid potential U.S. policy shifts. While monetary easing is set to continue in 2025, the pace will slow significantly this year.

Looking Ahead: Politics or Tech?

January often sets the tone for the year, and history suggests strong starts lead to above-average returns. But this time, the wildcard could be tariffs. Trump’s trade agenda has the potential to disrupt supply chains, corporate earnings, and inflation expectations.

The bigger question? Whether tech innovation or political shifts will define market leadership in 2025. With concentration risk at all-time highs, diversification - both sectorally and geographically will be key.

As goes January, so goes the year? Or will tariffs rewrite the script?