Markets started the new year on a positive note, overcoming some uncertainty around the impact of DeepSeek’s AI breakthrough and Trump’s trade agenda to end the month higher. The S&P 500 gained +2.8% in January, building on the index’s +25% return in 2024.
Smaller company stocks rallied in-line with their large cap peers, with the Russell 2000 index gaining +2.6% for the month.
Overseas equities gained +4% per the MSCI ACWI ex-US index, outperforming domestic stocks on the month after underperforming by roughly 20% during 2024.
Within fixed income, the Bloomberg Aggregate Bond index gained +0.5% as Fed Chair Powell opted to hold interest rates steady through at least March.
Commodity markets advanced +4% in January led by another monthly closing high for gold prices.
Our proprietary Three Dials readings were unchanged through the first month of the year, which we snapshot below:
- Market Sentiment and Momentum: (Positive ➕)
While individual investors appear unsure about the direction of the stock market, institutional traders are as bullish as they’ve been since 2021, according to CBOE put/call data.
As long as buyers continue to step in and support each market dip, our Momentum Dial will continue to hold in its Positive position.
- Economic Fundamentals: (Negative ❌)
While markets will continue to try to parse the stimulative policies of deregulation and tax cuts with the potentially contractionary impacts of trade wars and spending cuts, it is a good time to point out that ultimately, long-term economic growth (and thus market performance) is agnostic to who sits in the White House.
Right now, declining building permits and gloomy consumer confidence is offsetting an uptick in manufacturing orders, so our Fundamental Dial remains in a Negative position, though continued improvement in the data could cause us to upgrade that position.
- Valuation: (Negative ❌)
While Trump exerts his influence over economic policy, he’ll have little to no control over frothy market valuations, as he inherits the most expensive stock market of any president in US history according to economist Robert Shiller. As such, our Valuation Dial remains Negative.
Our composite Three Dials reading remains in a Moderately Defensive position through year-end, with two dials Negative and one dial Positive.
Sources: Morningstar
Disclaimer: Our intent in providing this material is purely for informational purposes, as of the date hereof, and may be subject to change without notice. This article does not intend to constitute accounting, legal, tax, or other professional advice. Visitors and readers should not act upon the content or information found here without first seeking appropriate advice from a trusted accountant, financial planner, lawyer or other professional.
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