January 2025 Market Update
Table of Contents
January 2025 Market Update
10 Feb 2025
Buckle Up: The Market Roller Coaster Has Started
Surprisingly, the chaos hasn’t hurt the stock market. In fact, global stock markets went up 3.5% in January, adding to a 6% gain since Trump won the election in November.
*Source: Factset: Kōura returns are pre-tax and post-fees. Returns over 12 months are annualised. Local market returns use the relevant markets indices; NZ Equities uses NZX50 index; US Equities uses S&P500 index; Rest of World uses MSCI EAFE Index; Emerging Markets uses MSCI Emerging Markets Index, Fixed Interest uses Bloomberg Aggregate NZ Composite Bond Index. Bitcoin return is the USD change in price of Bitcoin. The return for an Aggressive Portfolio represents the equivalent of 95% growth and 5% income assets investing in core Kōura Funds. The return for a Growth Portfolio represents the equivalent of 80% growth and 20% income assets by investing in core Kōura Funds. Returns are calculated by Kōura.
*Past investment performance is not a reliable indicator of future performance as investment markets can be volatile. It is important to focus on long-term financial goals rather than short-term market movements or recent performance trends.
So what's driving all of this? Let's break it down.
Trump: Making Moves That Shake the Markets
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Big Investment in Artificial Intelligence (AI): Trump promised $500 billion to boost AI technology. This is great news for companies that make computer chips, run data centres, and provide energy to these industries.
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New Tariffs: He has threatened 25% tariff on goods coming from Mexico, Canada with a 10% tax on all goods coming from China. This could hurt consumers all over the world (including the US where their costs of goods will go up) though especially in Canada and Mexico, which might fall into recession if these tariffs are enacted. It is amazing what he is willing to do to his closest allies! China appears to have avoided the worst of the Tariff saga and has seen a 10% tariff implemented rather than the 60% threatened during the election campaign, potentially due to the importance of China for Tesla.
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Immigration Crackdown: His strict immigration policies are causing concern, especially in industries that rely on immigrant workers. Farm workers and service industries have all started complaining to congress about their inability to find workers.
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Complaining About Interest Rates: Trump thinks U.S. interest rates are too high and even suggested he could do a better job than the current Federal Reserve Chairman. So far, the Fed has ignored him, but it is making people nervous, and people wonder how long the Federal Reserve can stay independent.
A Surprise from China: Cheaper, Better AI
When Deep Seek showed it could do the same job for a fraction of the cost, tech stocks plunged. Chip maker Nvidia lost 17% of its value in a single day—that is about $600 billion gone overnight.
Europe Outshines the U.S.
While the U.S. market grew just 2.8% in January, European markets did much better, rising 6-9%. Why?- Less Worry About Tariffs: Trump hasn’t hit Europe with new taxes… yet.
- Cheaper Stocks: European stocks are cheaper compared to U.S. ones, so investors are looking there for good deals, particularly given the concern about sky high technology valuations.
Interest Rates Are Going Up
Interest rates globally continue to rise for medium term loans (anything greater than 3 years). Investors are worried that inflation remains persistent and Trumponomics may unleash a second wave of inflation, which will require returns to the interest rates seen in 2023.This means borrowing money will start to increase again, which could slow down the global economy. Higher interest rates can also make investing in stocks less attractive because people can earn decent returns from safer investments like bonds.
New Zealand: Inflation Falls
In January, New Zealand reported that inflation (the rate at which prices rise) had dropped to 2.2%, which is within the RBNZ target range giving investors' confidence that the Reserve Bank will continue with their approach of 0.5% interest rate cuts. The big worry on everyone's mind though is what happens next - do we keep cutting? Or does inflation remerge and interest rates come up again?
The RBNZ is in a tough spot - a weaker economy will allow them to cut interest rates faster, and a stronger economy will make it hard to cut interest rates too much further, which will weaken the economy.
Bitcoin: Taking a Breather
Bitcoin hit a high of $108,000 in December and again in late January but has been bouncing between $90,000 and $100,000 since. Some good news (like a pro-crypto U.S. official being appointed) helped - but worries about the global economy and rising interest rates are holding it back.
Bitcoin will likely stay in this range until we see more concrete policies from Trump.
What’s Next?
2025 is shaping up to be a wild ride with lots of market ups and downs, thanks largely to the unpredictable White House. Here is what we expect:
- New Zealand: Mortgage rates will likely settle around 5%, but the economy will struggle for another year at least.
- U.S. Stock Market: Could see solid growth, maybe 5-10%.
- Japan: Potential to be a star performer combining cheap valuations, a strong tech sector and economy shaking off 25 years of deflation
- Bitcoin: Expected to trade between $70,000 and $120,000 but might struggle to go much higher than $110,000-$120,000.
Want to learn more? Check out our full 2025 outlook for detailed insights.
* If you are unsure about the suitability of an investment, you should seek advice from a qualified financial adviser
*The views and opinions in this article are those of Rupert Carlyon. This content is for informational purposes and should not be taken as financial advice.