Covering January Market
January was a good month for stocks with major indexes such as the S&P 500, the Euro Stoxx 50, and the FTSE 100 posting material gains. However, there was some market volatility during the period, especially in the artificial intelligence (AI) space.
The best-performing sectors for the month were Financials and Healthcare, both of which benefitted from portfolio rebalancing after a strong year for tech stocks. Technology and Consumer Staples were the worst performers.
One of the most notable events in January was the emergence of Chinese generative AI app DeepSeek.
This led to a meltdown in the tech sector late in the month. Reportedly built for less than $6 million, the Chinese app shot to the top of the App Store download charts in more than 50 countries worldwide during the month. And this led investors to question their AI forecasts. Before the emergence of DeepSeek, it was assumed that the mega-cap tech companies would be spending billions of dollars on the AI buildout in the years ahead (up to $250 billion this year alone).
However, if it’s possible for a company to develop a generative AI app so cheaply, companies may not need to spend as much on AI, and this could have implications for a wide range of companies. As a result of the uncertainty here, AI chip designer Nvidia’s stocks fell sharply, losing a record $560 billion in market cap in a single day. Other chip names such as Broadcom and ASML also fell in value significantly, as did data centre stocks such as Arista Networks and Vertiv and power stocks such as NRG and Vistra.
It’s worth pointing out that at this stage, the implications of DeepSeek’s launch are not totally clear. And many professional investors actually believe that it will be good for the AI industry in the long run. "Our view is that what happened with DeepSeek is actually bullish because it advances the move to artificial intelligence," said hedge fund manager Steve Cohen at the iConnections conference in Miami. Many other professional investors seem to support this view, believing that lower development costs will lead to the next phase of AI.
Speaking of the next phase of AI, investors were given a glimpse of what this could look like when Nvidia CEO Jensen Huang gave a keynote speech at the Consumer Electronics Show (CES) 2025 in Las Vegas in early January.
Here, Huang explained that the next chapter of AI is likely to be “physical AI” such as robotics and self-driving vehicles. And he unveiled some exciting new products that the company has been developing for this technology such as the Cosmos world foundation model platform — which is designed to speed up the development of robotics — and the Thor processor for driverless cars. Huang believes that robotics will be the largest technology industry the world has even seen and that self-driving cars will be the first “multi-trillion dollar” robotics industry. During his keynote, Huang also discussed quantum computing, stating that the technology is still decades away from being useful. This led to a sharp drop in quantum computing stocks, which soared late in 2024.
In the second half of January, corporate earnings were in focus, particularly mega-cap tech earnings — given the dominance of these companies in major indexes.
Here, results were mixed. Meta Platforms’ results were strong, with Q4 sales rising 21% year-on-year and net income rising 49%. However, Microsoft’s earnings were a little weak, with cloud guidance for the current quarter coming in below forecasts. Tesla’s earnings weren’t great, with Q4 revenue rising just 2% and profits falling sharply (the stock still moved higher after CEO Elon Musk talked up the company’s robotaxis). As for Apple, it beat revenue and earnings estimates, but missed on iPhone sales expectations and reported struggles in China.
On the economic front, the US Federal Reserve held interest rates steady, maintaining the current range of 4.25% to 4.50% (after three consecutive rate cuts last year). The European Central Bank (ECB), however, felt the need to cut rates, and took its key rate down 0.25% to 2.75%. In Japan, the Bank of Japan hiked rates to 0.5% — the highest level since 2008 — in an effort to combat inflation and rising wages. And this move pushed the Japanese yen up against the US dollar.
During the month, bond yields came into focus at times as the 10-year US Treasury yield rose to 4.8% while the 30-year US Treasury yield was close to 5% for the first time since 2023.
Concerns over US national debt and the debt ceiling were highlighted, along with possible inflationary threats such as higher tariffs, tax cuts, and mass deportations. Note that worries over fiscal discipline are not restricted to the US. In January, borrowing costs in France climbed above those of Greece, while gilt yields in the UK rose to their highest levels since 2008.
With regards to politics, Donald Trump was sworn in as the 47th US president on January 20 (the same day DeepSeek was released to the public). In his inauguration speech, Trump prioritised a Mars mission, sending space stocks up.
Since his inauguration, Trump has wasted no time in signing executive orders. He has already signed dozens of executive orders including one to remove policies that act as barriers to American artificial intelligence innovation.
Zooming in on commodities, oil prices rose sharply in the first half of January on the back of supply concerns. However, they dropped after Donald Trump stated that high crude prices benefit Russia, and called for Saudi Arabia and OPEC to lower prices.
As for gold, it had a strong month, rising around 7% to new all-time highs. Concerns about inflation and geopolitical uncertainty were some of the key drivers here.
During the period, the price of Bitcoin ranged from $90,000 to $107,000 (a new all-time high). The coin ended the month at $102,000, up about 9%. Ethereum, however, struggled to gain any momentum — ending the month down slightly.
Finally, turning to crypto, it was generally a strong — yet volatile — month.
