January 2025 Market Recap
Last Month in the Markets: January 2025
What happened in January?
Equity performance for the first month of 2025 was strong. All of the indexes in the grid above outperformed their one-year returns in January, except for the NASDAQ. Even as the laggard, the NASDAQ will clear 20% in 2025 if it continues with its January pace.
The month included the inauguration of the 47th U.S. President, interest rate announcements, inflation and Gross Domestic Product data.
The most significant action affecting investors will be the threatened tariffs that were introduced on February 1st by Donald Trump.
The events and announcements in January included:
1. January 10th
StatsCan’s Labour Force Survey reported that Canadian employment rose by 91,000 in December. The unemployment rate declined slightly by 0.1 percentage points to 6.7%.
U.S. employment increased by 256,000 in December, which was 38% above the 2024 monthly average of 186,000. The unemployment rate remained constant at 4.1%.
2. January 15th
Consumer prices in the U.S. rose 0.4 percent in December, and the all-items index increased by 2.9 percent over the last year according to the U.S. Bureau of Labor Statistics. Over 40 percent of the month’s increase is attributed to energy prices. Gasoline rose 4.4 percent in December. The annual rate for Core CPI, which excludes more volatile food and energy, was 3.2 percent and slightly better than expectations of 3.3 percent.
3. January 17th
Although only 9% of S&P 500 companies have reported earnings, earnings per share and revenue growth are above 10-year averages. If the results continue, it will be the seventeenth consecutive quarter with revenue growth. The Financials sector was the largest contributor to the overall earnings growth rate. China’s economy expanded by 5.4% in the in fourth quarter, exceeding expectations. The full year GDP reached 5% as stimulus measures delivered results aligned with overall goals. Future GDP growth may be hampered by tariffs imposed by President Trump, and the effects would likely be felt after the first quarter and beginning in the second half of the year.
4. January 20th
Donald Trump was inaugurated as the 47th President of the United States in a ceremony on the Rotunda of the Capital Building. Within the first days of his presidency over one hundred executive orders were signed to further his agenda. The Republican party controls the Executive and Legislative branches of government, and the conservative Supreme Court provides a strong mandate enabled by limited resistance.
5. January 24th
As of his first Friday after returning to office, Trump’s threatened tariffs had not yet materialized. A February 1 implementation date for 25% tariffs against Canada and Mexico imports has been repeatedly mentioned.
Fourth quarter earnings for U.S. corporates continued their positive results. After about 80 firms of the S&P 500 have reported, seven of the eleven sectors are reporting year-over-year earnings growth for Q4, and six of the seven are reporting double-digit growth.
6. January 29th
The Bank of Canada lowered its policy interest rate by 25 basis points. The U.S. Federal Reserve held rates steady, and the European Central Bank took the same decision as Canada. Progress against inflation was the main justification for continuing to reduce rates, along with the desire to stimulate economic activity. Tariffs have the capability of sparking inflation and reducing economic output, which will likely induce additional monetary policy changes.
7. January 31st
The U.S. Bureau of Economic Analysis released the Personal Consumption and Expenditures (PCE) price index, the Federal Reserve’s preferred inflation indicator. On a monthly basis, headline PCE rose 0.3% and 2.6% on a year-over-year basis in December. Both figures were aligned with expectations and are above the Fed’s targets.
What’s ahead for February and beyond?
On Saturday, February 1st, President Trump signed an executive order that imposed tariffs of 25% on imports from Mexico and Canada. China and Canadian energy would be subject to a 10% import tariff.
On the morning of February 3rd, a one-month pause was negotiated by Mexico after committing to deploy troops along its norther border to slow illegal immigration and drug shipments.
Canada introduced a retaliatory schedule of 25% tariffs on American imports. After two telephone calls between Trudeau and Trump on the eve of bilateral tariffs, a postponement for 30 days was agreed upon. The 30-day pause offers a temporary reprieve for businesses, investors, and policymakers. In the coming weeks, it will be critical for all parties to either finalize agreements that prevent the tariffs or strategize for their impact if they move forward.
