T3 Monthly Insights - Jan 2025

U.S. markets experienced significant volatility in late January after Chinese startup DeepSeek launched a low-cost AI model, triggering a 17% plunge in Nvidia’s shares and erasing $600 billion in market value—the largest single-day loss in U.S. corporate history. Despite this tech-sector shock, the S&P 500 ended the month with a 2.70% gain, while the Nasdaq Composite edged down 0.49%.

Fundamentals remained resilient, with the U.S. economy adding 256,000 jobs in December and Q4 GDP growing at an annualized 2.3%. However, inflation remained stubborn at 2.9%, keeping the Federal Reserve in a “higher-for-longer” stance and tempering hopes for a rate-cut cycle. Heightened trade tensions under President Trump’s administration, marked by tariff threats and economic coercion, added to investor unease, underscoring ongoing risks in the tech-heavy S&P 500 amid intensifying AI competition.

Meanwhile, the Eurozone saw its largest U.S. stock rotation in nearly a decade as investors sought defensive and growth plays amid tech-sector headwinds. The Stoxx Europe 600 index soared 6.3%, its best monthly performance since November 2023, closing at a record high. On January 30, the European Central Bank cut rates by 25bps to 2.75%, responding to economic slowdowns in France and Germany. Inflation in the Eurozone accelerated to 2.4% in December, while the composite PMI rose to an expansionary 50.2 in January. The euro closed the month nearly flat at 1.0362 (+0.08%).

UK equities similarly outperformed, with the FTSE 100 jumping over 5% on strength in energy and financials. However, fiscal concerns weighed on sentiment as bond yields surged—30-year gilt yields hit their highest level since 1998, and 10-year yields reached levels not seen since the 2008 financial crisis before normalizing. This bond sell-off was fueled by the Fed’s prolonged hawkish stance.

The pound weakened to a low of 1.2100 against the U.S. dollar before rebounding to 1.2395 (-0.97% m/m). UK inflation eased to 2.5% in December, down from 2.6% in November, offering some relief for households. With inflation slowing, the Bank of England is expected to consider its third rate cut at the upcoming February meeting to balance inflation control with growth support.

Commodities were top performers in January, with the Bloomberg Commodity Index rising 4.0%. Metal prices surged amid renewed trade tensions, as Gold rallied 8.04% to record $2,835 and Silver gained 8.31% to $31.30.

Overall, January’s markets reflected a shifting global investment landscape, driven by heightened geopolitical uncertainty, evolving central bank policies, and sector-specific risks. Investors should brace for further headline-driven volatility as global macroeconomic dynamics continue to unfold.

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