Markets Blog
David Matzko, LPL Research
LPL Research provides its Weekly Market Performance for the week of January 20, 2025. Stocks built on last week’s gain as global markets digested the arrival of the new U.S. administration. All three major averages gained ground as the S&P 500 scored its first record high since early December, while Treasury yields moved slightly higher. European and Asian equities traded higher over the last five days, broadly supported by potentially softer-than-feared U.S. tariffs. Crude oil prices sank on similar dynamics, ending the latest rally spanning the last five weeks, and the dollar also weakened.
Index Performance

U.S. and International Equities
U.S. Equities: Stocks delivered a strong gain as major averages extended last week’s advance. The benchmark S&P 500 added 1.6%, while the Nasdaq Composite gained 1.6%, and the Dow Jones Industrial Average rose 2.1%. Growth stocks outperformed value, while small caps also ended the week in positive territory.
In a holiday shortened trading week, headlines out of Washington dominated market focus following the inauguration of President Donald Trump on Monday. While various executive orders and tariff updates were focal points, the most influential announcement for U.S. markets may have been the $500 billion investment in artificial intelligence infrastructure through an initiative called Stargate. The announcement sparked another wave of AI enthusiasm, powering communication services and technology to the top of the sector watchlist, while industrials also received a boost from the expected construction and equipment needs. This broad risk-on tone towards equities aided market breadth (the number of stocks advancing outnumbering those declining) and lifted the S&P 500 to its first record high of 2025 and its first since December 6. Elsewhere, news flow was relatively quiet outside of fourth quarter earnings results. Among highlights, Netflix (NFLX) and General Electric (GE) blew out Wall Street’s earnings estimates, sending shares sharply higher, while Johnson & Johnson (JNJ) and Proctor & Gamble (PG) also topped consensus forecasts.
International Equities: European stocks ended the week with solid gains, capping the fifth consecutive weekly gain for the region. The European equity benchmark STOXX 600 reached multiple all-time intraday highs throughout the week, marking the first intraday high since September. Investors increased their risk appetite after President Trump refrained from including immediate tariffs in his flood of executive orders, plus dovish remarks from European Central Bank (ECB) officials also boosted sentiment. Furthermore, positive corporate results, including German sportswear company Puma and luxury retailer Burberry were among key takeaways over the last five days.
In Asia, nearly all major markets delivered a weekly gain, apart from India. Markets digested volatile tariff headlines from the U.S., ranging from a potential delay in tariffs to new measures arriving as soon as February 1. Hong Kong and mainland China ended higher after a Friday rally followed authorities encouraging mutual funds and insurers to increase stock exposure on Thursday. Japan closed with solid gains, supported by rate hike hopes leading up to Friday’s widely expected 0.25% rate increase from the Bank of Japan (BOJ). Taiwan led the region on the back of industrial stocks, while South Korea printed a modest gain.
Fixed Income, Currency, and Commodity Markets
Fixed Income: The Bloomberg Aggregate Bond Index ended the week slightly higher, rising back above the flatline as Treasury yields fell on Friday amid a weakening dollar and softer-than-expected flash Purchasing Managers’ Index (PMI) data. Both the 10-year Treasury yield and the rate-sensitive two-year Treasury yield ended little changed.
Global business leaders spent a few days this week hobnobbing at the annual World Economic Forum confab in Davos, Switzerland. According to multiple news reports, business leaders are generally upbeat about the pro-growth policies expected from the new Trump administration, with deregulation heralded as key to further economic growth. One repeating concern was the potential return of the bond vigilantes that could throw a wrench into funding these new pro-growth policies. Bond vigilantism arose in the early 1980s to describe investors who sought to exert power over government policies by selling their bonds or merely threatening to do so. And after a brief hiatus, it seems like the bond vigilantes may be back — at least in the U.K. and France as we’ve seen markets pushback on recent budget proposals. But the risk is rising that perhaps the bond vigilantes could be headed to the U.S. due to concerns about ongoing budget deficits and the prospects for even larger deficits under the new Trump administration. Budget deficits need to be funded by Treasury issuance and there is a concern that the amount of Treasury supply coming to market, which absent an increase in demand, could push interest rates higher, increasing the costs to finance further budget deficits. With the debt ceiling discussions underway and the Treasury Department suspending new Treasury issuance until March, it’s unlikely we’ll see a sharp increase in interest rates in the near term. But the longer-term risk remains that markets could become overly concerned about U.S. budget deficits and push interest rates higher or at least prevent them from falling much from current levels.
Commodities and Currencies: The Bloomberg Commodities Index (BCOM) declined this week. West Texas Intermediate (WTI) crude came under pressure after President Trump urged OPEC+ to raise production to lower oil prices while continuing to threaten stiff tariffs on Canadian imports, which provides oil to the northern United States. This marks the first weekly decline in five weeks, although cold weather continues to boost demand and tightened sanctions cut Russian exports. Gold rallied back near record high levels as tariff uncertainty drove so-called “safe haven” buying, while the U.S. dollar shedding 1.8% this week also provided support to gold prices. The dollar faced one of its worst weeks in recent months on potentially watered down tariffs against Chinese goods, experiencing large drops to bookend the week. The yen strengthened slightly after the BOJ rate hike.
Economic Weekly Roundup
Well-Anchored Inflation Expectations. From the University of Michigan Friday morning, long-term inflation expectations improved this month, much to the Fed’s relief. 12-month inflation expectations were unchanged at 3.3% but still elevated and the highest since May 2024. However, long-run inflation expectations are well anchored as the Fed maintains credibility among investors. This is key for the Fed managing market expectations this year. Disappointment in the stickiness of near-term inflation is likely the main culprit for a dip in consumer sentiment. In a separate report, existing home sales improved in December, but the pace of sales is significantly below the pre-pandemic pace. The housing market will likely have affordability headwinds throughout this year.
The Fed still has credibility as long-term inflation expectations remain well anchored. Inflation data make it unlikely that the Fed will cut rates at the March meeting and the probability of a cut in May is a coin flip. Further, as rates remain elevated, housing affordability will be a major headwind for potential home buyers.
Another Record High. The number of unemployed individuals continuing to collect unemployment benefits rose the highest since November 2021. Thursday’s report included the survey period for the nonfarm payroll establishment survey. Initial claims are still low and indicate minimal stress in labor markets. Data on long-term unemployed indicate some slowdown in hirings. Roughly 22% of unemployed people had been out of work for at least 27 weeks in December, higher than pre-pandemic levels.
The labor market is historically tight, but some sectors are slowing the pace of hirings. The weekly claims data suggest minimal stress in job markets. As long as wage growth outpaces the rate of inflation, the economy will chug along, and the Fed will not cut rates as much as expected only a few months ago.
The Week Ahead
The following economic data is slated for the week ahead:
Monday: Chicago Fed National Activity Index (Dec), New Home Sales (Dec), Dallas Fed Manufacturing Activity (Jan), Building Permits (Dec final)
Tuesday: Durable Goods Orders (Dec preliminary), Capital Goods Orders & Shipments (Dec preliminary), FHFA House Price Index (Nov), S&P Case-Shiller 20-City Home Price Index (Nov), S&P Case-Shiller U.S. Home Price Index (Nov), Dallas Fed Services Activity (Jan), Conference Board Consumer Confidence Report (Jan), Richmond Fed Manufacturing Index and Business Conditions Reports (Jan)
Wednesday: MBA Mortgage Applications (Jan 24), Advance Goods Trade Balance (Dec), Wholesale Inventories (Dec preliminary), Retail Inventories (Dec), FOMC Rate Decision
Thursday:GDP Annualized (4Q 2024 advance), Personal Consumption (4Q 2024 advance), GDP Price Index (4Q 2024 advance), Core PCE Price Index (4Q 2024 advance), Initial Jobless Claims (Jan 25), Continuing Claims (Jan 18), Pending Home Sales (Dec)
Friday: Employment Cost Index (4Q), Personal Income (Dec), Personal Spending (Dec), PCE Price Index (Dec), Core PCE Price Index (Dec), MNI Chicago PMI (Jan)
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