January 2025 Commentary: Signals, Noise, and Market Insights

It has been an exciting start to the year, so let’s jump right in!

• Markets:  The S&P 500 index was up 2.7% in January.  The Nasdaq was up 1.6%.  Interest rates were generally unchanged.  International stocks measured by the MSCI EAFA index were up a sizzling 4.8%.  Even emerging markets were up in the month of January.
  • Source: Morningstar
• Politics:  The new administration is hot out of the gate, signing executive orders and moving swiftly to implement campaign promises.  Some of these policies are being received with mixed reactions, and the White House has rolled back or postponed polices like state funding cuts and tariffs.  Similar to the first Trump term, it is hard to keep your eye on one apple when the whole tree is being shaken.
• Federal Reserve Policy:  The Fed held rates steady in January, and despite increased concerns over inflation, signaled that they still expect to cut rates later this year.
• DeepSeek:  One of the biggest headlines this year has been the release of DeepSeek-R1, a new development from a Chinese artificial intelligence (AI) company that has caused incredible buzz in the technology community.  The news has raised questions over American dominance in the AI space and caused a lot of selling in American technology companies over fear their market position is not as strong as previously thought.
• Q4 2024:  Earnings for the 4th quarter of 2024 have started to be released, and results have been generally good.  The blended growth rate in earnings so far is 13.2%, the highest year over year growth rate since the 4th quarter of 2021.  The blended revenue growth rate is currently coming in at 5%, the 17th consecutive quarter of positive revenue growth.
  • Source: Morningstar 

What does this all mean?  When markets are up in the month of January, that is generally a good sign.  If we take the first bullet point around market action, it is generally a positive data point.  As for the politics, we stand by our past comments that the new administration is going to invite more volatility to the picture with its aggressive policies and disruptive nature, but the market seems to be optimistic about how it will all shake out.  The Federal Reserve I would put in the slightly negative column since they seem to be slowing down their accommodative stance, but that makes general sense when mixed with the fiscal policies that are being pushed forward. 

DeepSeek-R1’s release has been called a “sputnik moment”, a colloquial reference suggesting a public fear that a country has fallen behind another in technological advancements.  There are still some questions to be answered here.  OpenAI, the company that created ChatGPT, has accused DeepSeek of stealing its intellectual property.  The new large language model (LLM) release by DeepSeek claims to be a cheaper, faster, and more efficient experience.  Supposedly, DeepSeek-R1 was developed in two months and cost less than $6 million to build.  This is massively less money and time than most AI developers would have thought, implying that American companies are overspending on building out their AI platforms. 

Things being cheaper and more efficient is generally a good thing.  We don’t interpret this news or release as a reason to panic but instead would view it as a potential positive for things to come.  It is unlikely American companies would be comfortable entrusting their customers data to a Chinese AI company, so this isn’t an immediate threat to existing projects or cash flows.  What it does do is increase the demand for further innovation in this space for the players already involved.  There are some lessons to be learned with how DeepSeek-R1 is able to do what it does, and the magic seems to be more in how they approach the problem than secret ingredients.

Earnings are incredibly important in trying to figure out where things go from here.  However, with so much uncertainty in the issues mentioned above, it is hard to separate the signal from the noise.  We continue to monitor how the numbers and guidance roll out, but macroeconomic issues and policies seem to have the greatest impact on overall market direction at the moment. 

If we were to tie it all together with a nice neat bow, things are off to a good start for 2025 despite what seems like a whirlwind of craziness.  We continue to view sell offs as buying opportunities, but we also think market rallies are a good time to consider rebalancing and positioning for future dips.  Another way to say it is “stay calm amidst the chaos”.  While we might not love every headline or news story, brighter days are ahead.

Jordan Kaufman

Chief Investment Officer

Green Ridge Wealth Planning

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