Market Recap: January 2025

Market commentary

• The U.S. economy grew at an estimated 2.3% annual rate in the 4th quarter, contributing to a 2.8% rate for 2024.
• Core PCE, the Fed’s preferred inflation measure, remained at 2.8% in December, indicating that further progress is likely needed before additional rate cuts.
• Manufacturing sentiment, as measured by the ISM Manufacturing Index, posted above the neutral rating of 50 for the first time in over two years, at 50.9.
• The Trump administration’s agenda — with substantial changes to immigration and trade policy, including additional tariffs — adds to economic uncertainty. 

Select economic and market data

Equities

• After struggling early in January, stocks climbed firmly in the latter half of the month, with the Dow (DJIA) and developed foreign (MSCI EAFE) indices leading returns.
• Following AI-related news, Information Technology stocks fell and were the only sector to perform negatively in January.

Fixed income

• Treasury yields finished the month at levels near where they began, leading to modest positive performance for bonds.
• Corporate bonds, both investment-grade and high-yield, continue to benefit from a resilient economy and robust equity returns.

Strategic outlook

• Some near-term caution warranted on equities, particularly in high-growth large-cap stocks following a period of significant outperformance; currently favoring small- and mid-cap domestic stocks longer-term.
• Above-average volatility is likely given central bank involvement and geopolitical uncertainty.
• Near-average expected returns projected for fixed income after period of rising rates and bond market sell‐off.