We hope you managed to get some extra sleep last night after witnessing the Super Bowl outcome. Much like the consensus before the game predicted a close match, it serves as an apt analogy for the start of the year in the markets. There was an expectation, followed by reality. With the new administration taking charge, investors and analysts are trying to discern the direction, path, and implications of the current flurry of activities.
As I mentioned in last month’s 2025 outlook, significant attention will be on the new administration to see what actions it might take immediately in January, including policies enacted through executive orders and those following the traditional legislative route. We have witnessed the issuance of 54 executive orders along with over 90 revocation orders in just 20 days. This was certainly unexpected, and everyone, including investors, are trying to understand the potential economic impact.
In January, volatility returned, yet markets generally rose, with the S&P 500 ending the first month of the year +2.70%. This positive result doesn't fully capture the rotation or expansion of the rally observed. The tech-heavy Nasdaq lagged behind the major indexes, advancing only by +1.64%. While the Nasdaq has been at the forefront of the recent bull market, a significant artificial intelligence development emerged with potential effects on both the industry and US markets. Chinese startup Deep Seek introduced an AI model it claims can rival top US models at a much lower cost. The notion of developing a model using cheaper, less advanced chips led to significant selling and pressure on US companies in the AI sector during the month.
In terms of sectors, January stood out compared to the previous 24 months, with Health Care and Financials leading the gains, while the technology sector experienced a monthly decline (-0.7%). Since there is no Federal Open Market Committee (FOMC) meeting planned for February, we will be closely monitoring economic reports, as further direction may come from developments in inflation, tariffs, and labor market news.
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