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Weekly Market Performance — January 31, 2025

J. J. Wenrich CFP®

Markets Blog

David Matzko, LPL Research


LPL Research provides its Weekly Market Performance for the week of January 27, 2025. U.S. stocks ended mixed after what turned out to be a busy week for capital markets. Artificial intelligence (AI) developments rattled global equity markets on Monday, but focus quickly turned to key U.S. tech earnings. Meanwhile, European stocks advanced on solid earnings and looser monetary policy, while Asia gained ground in holiday-thinned trading. Treasury yields fell near year-to-date lows, while the dollar strengthened against its peers.

Index Performance


U.S. and International Equities


U.S. Equities: After a brief slide on Monday, stocks ended mixed after trimming losses in the latter half of the week. The Dow earned the place of weekly outperformer, while the benchmark S&P 500 trimmed weekly losses on Friday to end 0.6% lower. The tech-heavy Nasdaq fared the worst of the three major averages, shedding 1.4%. Value stocks outperformed their growth counterparts, while small caps ended 0.7% lower.


Markets sold off on Monday after Chinese AI startup DeepSeek prompted a “sell now ask questions later” attitude across tech shares. According to DeepSeek, the AI chatbot utilized publicly available open-source models and rivaled the performance of U.S. hyperscalers at a fraction of the cost. The impressive performance, using less data and power consumption, rattled markets, exacerbating pre-existing scrutiny on outsized AI spending, U.S. technology exceptionalism, and elevated AI-related equity valuations. Investors continued to analyze the development, and after up and down trading on Tuesday and Wednesday, stocks found support from positive tech earnings to end the week.


The first batch of Magnificent Seven stocks reported fourth quarter results this week, including Meta Platforms (META), Microsoft (MSFT), Tesla (TSLA), and Apple (AAPL). TSLA failed to meet earnings forecasts, but shares jumped on an upbeat outlook amid enthusiasm for autonomous driving and robotics, and META moved higher after topping estimates and offering an upbeat outlook. MSFT lagged on slowing cloud-computing growth, and AAPL jumped on solid guidance and positive takeaways. Meanwhile, on the macro front, Wednesday’s Federal Reserve (Fed) rate decision was largely a non-event for markets. Fed Chair Jerome Powell and Company held rates unchanged, as expected and Powell delivered a reassuring press conference for market and Fed-watchers.

International Equities: European stocks ended the week higher, cruising to new records throughout the week and securing their best month since January 2023. Chipmakers and electrification stocks briefly came under pressure on the DeepSeek news, but markets received support from strong corporate earnings, including semiconductor equipment maker ASML, Finnish telecom equipment maker Nokia, and petroleum behemoth Shell. Additionally, equities advanced after the European Central Bank (ECB) delivered their fourth consecutive rate cut.


Asian markets glided through relatively listless sessions due to holiday-thinned trading. Most major markets were closed for a portion of the week in observance of the Lunar New Year holiday, including Hong Kong, South Korea, Taiwan, and mainland China. Japan remained open all five days, ending the week in positive territory after the Bank of Japan (BOJ) hinted at more rate hikes and unemployment unexpectedly declined. South Korea was closed until Friday, but benchmarks dropped as stocks repriced after being closed during Monday’s tech rout. Greater China was also closed, although notable economic data featured the January manufacturing Purchasing Managers’ Index (PMI) unexpectedly slipping into contraction.

Fixed Income, Currency, and Commodity Markets


Fixed Income: The Bloomberg U.S. Aggregate Bond Index gained ground this week, despite a brief intraday drop following Wednesday’s Fed rate decision. The 10-year Treasury yield fell almost ten basis points (0.10%) during the week, while the rate-sensitive two-year yield ended little changed.


Despite somewhat of a rollercoaster month, Treasuries ended January higher with yields hovering near their lowest levels since the turn of the calendar. Yields inched higher the first half of the month, due in part to speculation around steep U.S. tariffs sparking inflationary pressures. While tariff threats from President Trump have been volatile, they’ve broadly been watered down more than originally feared; and the bond market has brushed off threats — at least until something is enacted. Another recent focal point was the re-steepening of the yield curve. But while yield curves have recently steepened, moving back towards normal levels, it’s important to note that they still aren’t steep by historical standards. Historically, the difference between the 2-year Treasury yield and the 10-year Treasury yield is close to 1%, albeit with a lot of variability. The 2Y/10Y spread is currently only around +0.30%.


While DeepSeek shook global equity markets, the impact was also felt in the bond market as Treasury yields pulled back. If DeepSeek’s processes show that the AI revolution can be achieved at a lower cost and with lower energy usage, that would be good for macro conditions (such as productivity and inflation) going forward. In theory, this would help reduce the Fed’s neutral rate a touch and keep interest rates lower than they otherwise would be if big AI spending continued unabated. But there is still a lot to unpack with DeepSeek and the potential AI competitors, and time will tell if pricing holds or if it’s another false start by the bond market.

Commodities and Currencies: The Bloomberg Commodities Index traded lower this week with U.S. tariffs in the spotlight. Signs of weaker-than-expected global economic growth weighed on West Texas Intermediate (WTI) crude oil prices after gross domestic product (GDP) grew at a slower than expected pace in the U.S. and Eurozone last quarter. Weaker oil demand in China and increases in U.S. stockpiles acted as a headwind, while tariff threats continued to unsettle markets. Meanwhile, gold prices erased early week losses, rallying near record highs on a wave of looser monetary policy in Europe and Canada, a lack of inventory in parts of the physical market, and safe haven buying as President Trump reaffirmed tariff threats. Silver also printed a solid gain, while copper ended lower. In currencies, the U.S. dollar strengthened against its peers on tariff headlines and positive personal spending data, despite lower bond yields.


Economic Weekly Roundup


Strong Consumers Keeping Inflation Sticky. Real spending in December made inflation run hotter than the previous month but the disinflationary trend should reemerge later this year. Real spending rose 0.4% month to month and the personal savings rate dipped slightly to 3.8%. Demand for travel and other discretionary items grew in December as the consumer feels good about current conditions. Financial services and insurance heavily contributed to the growth of inflation for most of 2024.


Despite the stickiness of inflation in recent months, the disinflationary trend should reemerge in the spring as services prices are set to moderate. The personal savings rate currently is 3.8%, materially below the 2019 average of 6.7%, putting the consumer in a precarious position if incomes weaken.


Fed Meeting as Expected. The Federal Open Market Committee (FOMC) members were unanimous in their decision to keep rates unchanged at the 4.25 to 4.50 percent range. After an adjustment to policy statement verbiage around inflation initially appeared hawkish, Fed Chair Powell calmed markets by stating the change was just a little bit of language clean up. Labor conditions so far have not materially changed, but a surprise in next Friday’s payroll report could shift the narrative. Markets may need further introspection: bond yields rose on the perception the Fed is growing more concerned with the inflationary trajectory.


With the data we have currently, the Fed will likely hold rates unchanged at their March 19th meeting. Solid income growth for most households over the past year has kept services inflation elevated. Businesses are expanding operations, consumers have a healthy appetite for travel and leisure, and animal spirits are still elevated. These conditions make it difficult for the Fed to cut rates without reigniting broad inflation pressures.


The Week Ahead

The following economic data is slated for the week ahead:

  • Monday: S&P Global U.S. Manufacturing PMI (Jan final), Construction Spending (Dec), ISM Manufacturing Report (Jan), Wards Total Vehicle Sales (Jan)

  • Tuesday: JOLTS Job Openings Report (Dec), Factory Orders (Dec), Durable Goods Orders (Dec final), Captial Goods Orders & Shipments (Dec final)

  • Wednesday: MBA Mortgage Applications (Jan 31), ADP Employment Change (Jan), Trade Balance (Dec), S&P Global U.S. Services and Composite PMI (Jan final), ISM Services Index (Jan)

  • Thursday: Challenger Job Cuts (Jan), Nonfarm Productivity (4Q preliminary), Unit Labor Costs (4Q Preliminary), Initial Jobless Claims (Feb 1), Continuing Claims (Jan 25)

  • Friday: Annual Revisions: Establishment Survey Data, Change in Nonfarm Payrolls (Jan), Two-Month Payroll Net Revision (Jan), Change in Private Payrolls (Jan), Change in Manufacturing Payrolls (Jan), Unemployment Rate (Jan), Average Hourly Earnings (Jan), Average Weekly Hours All Employees (Jan), Labor Force Participation Rate (Jan), Underemployment Rate (Jan), University of Michigan Sentiment Report (Feb preliminary), Wholesale Inventories (Dec final), Wholesale Trade Sales (Dec), Consumer Credit (Dec)








IMPORTANT DISCLOSURES


This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.


Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk.


Indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and does not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.


This material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.


Unless otherwise stated LPL Financial and the third party persons and firms mentioned are not affiliates of each other and make no representation with respect to each other. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.


Asset Class Disclosures –


International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.


Bonds are subject to market and interest rate risk if sold prior to maturity.


Municipal bonds are subject and market and interest rate risk and potentially capital gains tax if sold prior to maturity. Interest income may be subject to the alternative minimum tax.


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High yield/junk bonds (grade BB or below) are below investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.


Precious metal investing involves greater fluctuation and potential for losses.

The fast price swings of commodities will result in significant volatility in an investor's holdings.


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