Market Wrap – January 2025

This is a brief review with a focus on key trends. More detailed information, including macroeconomic statistics and key events, is presented in the weekly reviews.

Executive Summary

US Stock Market: The U.S. stock market returned to growth in January, but gains in the Nasdaq Composite and S&P 500 were limited by declines in Apple (-5.8%) and Nvidia (-10.6%)—the two largest companies by market cap.

Apple's stock declined due to a sharp drop in iPhone sales in China, its second-largest market, while Nvidia fell amid concerns over Chinese AI startup DeepSeek, whose cost-effective AI model raised doubts about the sustainability of high AI-sector valuations. In contrast, Meta Platforms surged 17.7%, driven by strong quarterly results and signs of a rapprochement between CEO Mark Zuckerberg and President Donald Trump.

Cryptocurrencies: The cryptocurrency market reflected broad optimism, with market capitalization rising by 8.4%, supported by $5.3 billion in inflows into U.S. spot Bitcoin ETFs.

Sector Performance: The Technology sector was the only one to post losses, weighed down by Nvidia’s decline.

Global Stock Markets: International markets saw strong gains, with European stocks posting their best month since November 2023. The Stoxx Europe 600 Index surged 6.3%, reflecting growing optimism that the most severe U.S. tariffs may not materialize.

Meanwhile, investor sentiment toward emerging markets is shifting from leaders to outsiders. India, previously a top investment destination, is experiencing a pullback amid slowing economic growth, a weakening currency, and foreign capital outflows. The NSE Nifty 50 Index has declined 10% since its all-time high in September, marking its fourth consecutive monthly loss, a rare occurrence last seen in 2001. In contrast, Brazil is attracting renewed investor interest, particularly from funds reallocating away from China. Change Global Investment LLC plans to double its Brazil exposure to 15% by year-end, citing record-low valuations. The Ibovespa Index trades at just 6.79 times forward earnings, compared to the MSCI Emerging Markets Index average of 11.72—its deepest discount in two decades.

Monetary Policy and Bond Market: The Federal Reserve's pause in its easing cycle had little impact on market expectations, with traders reducing the projected 2025 year-end Fed rate by just 1 basis point compared to December. However, the timeline for rate cuts was pushed back, with the next cut now expected in June, instead of March. As a result, the U.S. Treasury yield curve remained stable. The 10-year bond yield stood at 4.58%, while the 30-year bond yield increased by 5 basis points to 4.83%.

US Stock Market

In January, the U.S. stock market returned to growth. However, gains in the tech-heavy Nasdaq Composite and the S&P 500 were constrained by significant declines in the two largest companies—Apple (-5.8% over the month) and Nvidia (-10.6%). Apple's stock suffered from a sharp decline in iPhone sales in China, its second-largest market, while Nvidia's shares slumped on concerns over Chinese AI startup DeepSeek, whose cost-effective AI model raised doubts about the sustainability of high valuations in the AI sector. In contrast, Meta Platforms' valuation surged by 17.7% on strong quarterly results and signs of a rapprochement between CEO Mark Zuckerberg and President Donald Trump.

The cryptocurrency market reflected broad optimism, with market capitalization rising by 8.4%, supported by strong inflows of $5.3 billion into U.S. spot Bitcoin ETFs.

Only the Technology sector posted losses, driven by the slump Nvidia stock.

According to our calculations, the Magnificent 7 accounted for just 2% of the year-to-date growth of the S&P 500 Index, compared to 62% and 56% respectively in 2023 and 2024. In relative terms, the market cap of these stocks rose by 0.1%, while the value of the remaining 493 stocks increased by 4.2%.

Global Markets

Globally, country ETFs posted robust gains, with European stocks seeing their best month since November 2023. The broad regional Stoxx Europe 600 Index surged by 6.3%, reflecting growing optimism among investors that the most severe U.S. tariffs may not materialize.

Meanwhile, global investor sentiment toward emerging markets appears to be shifting from leaders to outsiders. India, which until recently was a top investment destination, is experiencing a significant pullback amid slowing economic growth, a weakening currency, and foreign capital outflows. The country's benchmark NSE Nifty 50 Index has declined 10% since its all-time high in September, marking a fourth-straight monthly loss—a rare occurrence last seen in 2001.

In contrast, Brazil is attracting renewed investor interest, particularly from funds reallocating away from China. Change Global Investment LLC, a Washington-based asset manager, plans to double its Brazil exposure to 15% by year-end, citing record-low valuations. The Ibovespa Index trades at just 6.79 times forward earnings, compared to the MSCI Emerging Markets Index average of 11.72, marking its deepest discount in two decades.

Debt and Fixed Income Markets

According to CME data, the implied Fed Funds rate curve for the next 18 months (through July 2026) steepened, with the Federal Reserve expecting to be slightly more hawkish in near term, while the terminal rate of the current easing cycle nudging down by 5 basis points.

Consequently, the U.S. Treasury yield curve remained stable. The 10-year bond yield stood at 4.58%, while the 30-year bond yield increased by 5 basis points to 4.83%.

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