weekly market update 1/31/2025

While stocks finished the week lower, the S&P 500 started 2025 with strength, rising over 2.5% in January.  This week was not without market volatility though. The artificial intelligence (AI) trade came under intense pressure on Monday with the emergence of DeepSeek, an AI model developed by a Chinese hedge fund that boasts strong performance versus Western competitors (i.e. ChatGPT) while purportedly using less-sophisticated and lower-cost technology.  There is growing skepticism around many of DeepSeek’s claims, but markets shot first and asked questions last and technology was the only S&P 500 sector that finished the month lower.

However, while AI market darlings such as Nvidia sold off, the broader stock market was much more resilient.  Some of the tailwinds for market broadening were the rotation out of the Magnificent 7, the continuation of a solid Q4 earnings season, a reprieve from rising interest rates, and inflation reports that have not come in hot.  A higher January for stocks generally bodes well for the rest of the year, but next week will be busy with headline risks from tariffs, more earnings releases, and a variety of important economic data.

THE TARIFFS ARE COMING?

Stocks sold off into the weekend as investors braced for tariff announcements on Saturday.  President Trump has repeatedly cited February 1st as the date tariffs would be rolled out and on Friday afternoon the administration reiterated 25% levies on Canada and Mexico and 10% tariffs on China.  Furthermore, Trump noted that tariffs may go into effect by February 18th on a range of items including oil, gas, steel, aluminum, and copper.  However, the exact details around these tariffs will be especially important as markets look for visibility into potential tariff exemptions and whether these duties are more gradually phased in to allow for leverage in negotiations with these countries.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder

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