By Jeremy Bryan
There was a flurry of activity that has the potential to significantly influence market trends in 2025. January saw the new administration begin to aggressively implement their social and economic agenda. Next, news came out on artificial intelligence (AI) that could signal a massive shift in the trajectory and deployment of this new technology. Lastly, many of the largest companies have begun reporting their earnings and communicating their initial outlooks for the year ahead. If what we have experienced thus far is the trend going forward, investors need to prepare themselves for a whirlwind of headlines that could increase market volatility.
Despite the high levels of uncertainty surrounding the economic and fiscal agenda, stocks were largely positive in January. Notably, this occurred despite Nvidia, one of the largest companies in the S&P 500 and the most high-profile beneficiary of artificial intelligence, declining over 10% during the month. The most substantial news in artificial intelligence was on DeepSeek, a Chinese artificial intelligence company that is claiming to achieve results comparable to other AI providers, but at a substantially lower cost. There is still a lot we do not know about DeepSeek and the ability for other companies to lower costs for AI, but this potential disruption created shockwaves for technology companies like Nvidia that have benefited from all the capital spending around AI.
Turning to the economy, tariffs are now front and center as the most widely discussed and potentially most impactful tool affecting economic growth. In January alone, tariffs for Colombia were announced and then quickly repealed, followed by new tariff announcements for our three largest trading partners – Canada, Mexico, and China. Investors are trying to assess whether tariffs will continue to be used as a negotiation tool or if implementation is likely in the future. Second, if implementation occurs, investors will attempt to understand the downstream effects on inflation, trade wars, global growth, and supply chains. Trying to assess this with any level of accuracy, at this point in time, is largely a guess. One thing seems certain, though – tariffs as threat and negotiation leverage will be utilized more now than at any time in recent history. It will be determined whether markets look through these perceived threats or if asset volatility will rise due to the uncertainty.
It is rare when corporate earnings and outlooks take such a backseat to other topics in January. Earnings, however, have been relatively positive thus far. Estimates have largely beat expectations and expected growth is still above 10% for 2025.
If January is any indication, 2025 will be filled with market-moving headlines and potential emotional swings driven by both technological advancements and developments in Washington D.C. In times like these, investors are best served by refocusing on long-term objectives, understanding risk, and concentrating on factors within their control. Investors will have little influence on tariff policy, but understanding personal objectives and their respective time horizons will focus asset allocations toward achieving goals and away from short-term, emotion filled trading. Reacting to, and trading, every headline will likely lead to frustration over prosperity. Neither “pie in the sky” optimism nor “doom and gloom” skepticism is a recommended strategy. Rather, a prudent approach that combines both protection and participation opportunities within a customized investment plan continues to be the most effective strategy.
