Investment market commentary – 31 January 2025

Global share markets¹ finished January 3.3% higher despite some market jitters (all returns are in local currency terms unless stated). Without looking at the detail, investors can be excused for thinking it had been plain sailing with a month of strong returns. However, lifting the bonnet provides a different picture of a roller coaster ride with ups and downs along the way. 

Most of the price action occurred in the US share market. After surging higher at the start of the month, US shares² again reached new record highs, with the key index rising past 6,100 for the first time ever. Investor optimism increased as inflation slowed by more than anticipated, some corporate earnings came in stronger than expected and President Trump reiterated his commitment to bring the price of oil down. 

Trump’s talk of tariffs unsettled the market. However, it was unexpected news out of China that saw investor sentiment sour late in the month. A privately owned Chinese technology company, DeepSeek, had developed an artificial intelligence (AI) model at a fraction of the cost of the large US companies. This news sent shock waves through the market, resulting in a selloff of US tech names, with Nvidia at the centre. The steep selloff was short lived, with the market stabilising shortly after the initial fall. While questions remain over the validity of DeepSeek’s claims, it does bring into question the dominance (and high valuations) of US technology companies in the AI space. Despite the market selloff, US shares ended the month up 2.8%, with the information technology sector being the only sector to experience a negative month, ending down 2.9%. 

The European share market³ started the year in impressive form, comfortably outperforming their US counterparts. The technology sector does not dominate the share market in Europe as it does in the US. Given this, investors in Europe shrugged off the AI wobbles in the US and took confidence from the European Central Bank cutting interest rates by 0.25% and providing guidance for a further reduction in March, together with some tentative signs that economic momentum (and hence corporate earnings) may be at an inflection point. All sectors experienced a positive return led by the information technology sector and financials, which both gained 8.5% for the month. 

Performance wasn’t as strong in the domestic share market⁴, which ended January down 0.9%. Infratil and Fisher & Paykel Healthcare, 2 large companies on our market, accounted for most of this fall as they were caught up in the DeepSeek and tariff news. Across the Tasman, the Australian share market⁵ hit fresh new highs rising 4.6% over the month as inflation rose at its slowest pace in almost 4 years. The pullback in inflation has opened the door for interest rates cuts from the Reserve Bank of Australia as early as February. 

In fixed interest, US Treasury yields declined (prices move inversely to yields) as investors took comfort in some softer US inflation figures and sought a safe haven from the share market’s AI induced pullback. The 10-year US Treasury yield finished January at 4.54%, down 0.03%. Domestically, yields were relatively unchanged over the month, with the 10-year NZ Government Bond yield at 4.51%. 

The differing fortunes of various market indices are illustrated in the chart below. 

Note: Returns are in local currency terms.

The outlook 

The year is only just underway, and already it has been an eventful one with several key factors that have led to market volatility and meaningful asset price moves. In some cases, they have gone against the prevailing consensus and historical trends. Even so, global equity markets have still managed gains. Indeed, we believe this ‘higher but choppy’ dynamic seen in markets so far this year, could prove to be a blueprint for how the year plays out as a whole. 

At the heart of this market resilience is a still healthy US economic and corporate landscape. And if that persists, which is our base case, then it should set the scene for another reasonable year for multi-asset portfolio returns overall. But 2025 is likely to have many twists and turns. At times, these forces may see investors question whether these reasonable returns can in fact be achieved. We think that those periods will provide opportunities for our active management style. 

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