Key Takeaways:
- Fourth quarter U.S. GDP growth slowed from 3.1% in Q3 but remained solid at an annualized 2.3% rate, driven by a resilient consumer and increased government spending.
- Despite a bumpy ride driven by a stronger-than expected jobs report and a shake-up within artificial intelligence leadership, U.S. equities posted strong January returns.
- Global equities also had a strong showing, with developed markets (+5.3%) outpacing the S&P 500 (+2.8%) with emerging markets not far behind (1.8%).
- The FOMC left the Federal Funds Rate range unchanged at 4.25% – 4.50% after their January meeting as progress on inflation has stalled in recent months, though they acknowledged the labor market remains stable.
- Consumer confidence dropped from December and came in below expectations amid concerns of rates staying higher-for-longer and average 12-month inflation expectations increasing to 5.3% from 5.1% a month prior.
- Fixed income markets broadly finished higher after a turbulent month that saw U.S. 10-year Treasury yields hit a recent high of 4.79% before dropping to 4.58% by month-end.
- Entering February, President Trump made headlines and shook markets by announcing significant tariffs on Canadian, Mexican, and Chinese imports, though deals were quickly struck with Canada and Mexico to delay the start for 30-days.
- China quickly retaliated with tariffs ranging from 10% to 15% on various U.S. goods which are currently slated to start on February 10th. They also launched an antitrust investigation into Google and implemented export controls on minerals essential for high-tech industries.
- The tariffs, if ever fully enacted, are likely to raise prices and slow economic activity, which could have a meaningful impact on stocks, bonds, and exchange rates, though the situation continues to evolve making it difficult to properly assess or predict the impact on investments.
- Should uncertainty continue and lead to an extended period of heightened market volatility, the best defense for investors is a well-diversified portfolio with overall risk levels aligned with long-term goals.
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