Moving Parts #27

Review of January

Review of January Global equity markets started 2025 in positive fashion, albeit with several wobbles during an eventful first month. Investor attention was focussed on the policy plans of the incoming Trump administration in the US, alongside movements in government bond yields, and potentially significant developments in the world of Artificial Intelligence (AI). Despite increased volatility during the month, most equity markets finished January strongly, with the UK equity market no exception. Indeed, the FTSE All-Share Index up 5.52% during the month. ?

European equities were, perhaps surprisingly, one of the strongest performers during January, despite increased signs of economic weakness, ongoing political uncertainty in France and Germany and potential US tariff threats. The ECB did at least continue cutting interest rates, with another 0.25% cut taking deposit rates down to 2.75%. President Lagarde’s commentary was also supportive, signalling likely further rate cuts to come. ?

2025 has also started strongly for US markets, with all the major indices solidly up for the month. What was interesting to note is that much of the strength has come from areas outside of mega cap tech. We believe this trend of broadening participation is healthy for the market.

Trump and all things AI

Donald Trump’s second coming came into view and with-it optimism that the new administration would be more pro-business than the last. Those companies that derive significant amounts of their revenues from within the US borders were not to be disappointed as within hours of taking office, the new President took out his pen and signed numerous executive orders, rolling back most of President Biden’s policies that he deemed as woke or regressive.?

It was notable during the inauguration how many senior executives of large cap technology companies were in attendance, with Jeff Bezos (former Amazon), Mark Zuckerberg (Meta) and Sundar Pichai (Alphabet) standing shoulder to shoulder only a little further from the President than Tim Cook (Apple), but significantly closer than many former presidents and family members. Day two saw Sam Altman (OpenAI), Larry Ellison (Oracle) and Masayoshi Son (Softbank) being courted by the President as they announced the creation of Stargate, investing $500bn over the next four years in AI infrastructure based in West Texas.?

No sooner than the US had stated its aim to secure its position as the Artificial Intelligence (AI) leader in the world, the market was caught off guard by the unveiling of DeepSeek’s performance data, indicating that the restriction of leading technology to China had led to them developing an alternative way to generate AI material at a fraction of the cost. This sent shock waves through the technology sector as they scrambled to analyse the ramifications of this new entrant to the AI race. Nvidia, the poster child of AI, fell by nearly 11% (USD terms) during the month.

Forward Looking

Our base case remains for a steady improvement in global, and UK, economic activity in the year ahead. Inflation remains relatively well anchored, interest rates continue to gradually fall, consumers are in reasonable shape and government fiscal support is significant and, in many cases, increasing. We take the view that the most draconian US tariff proposals are more likely to be bargaining tools than anything more sinister and, whilst aggressive competition in the AI space may prove challenging for the large incumbent US players, it is entirely possible that it will be of potentially significant benefit to the world at large.