Market Updates

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Source: Moore Financial Advisors & Morningstar

Clichés for Investing

I love a good cliché. So, let’s not beat around the bush. Let’s bite the bullet, cut to the chase, and talk turkey: some investors are really worried that we’re in the calm before the storm.

In conversations with clients during the past month, I’ve detected a higher than usual level of anxiety.

Perceived pernicious policy priorities pursued by the current administration, along with highly polarized politics and debased social dialogue are amping up concerns about what comes next.

The propensity to extrapolate is natural. If part of the picture (political-social) seems out of focus or out of whack, shouldn’t that eventually affect other parts (economic-financial) of the landscape? Possibly, but also neither necessarily nor probably.

But looking at the horizon through economic and financial market lenses, the outlook appears to be fairly constructive as we approach 2026.

For inveterate worrywarts (a group of which I am a card-carrying member), here are some recent economic and financial observations to keep in mind:

• Jobs: the labor market is healthy; the Department of Labor’s weekly jobless claims data signals a labor market that is neither cracking or overheating; some economists describe the current situation as “no-fire, no-hire” and “softer”, which, though different from the exceptionally strong demand for labor situation after the pandemic, still remains supportive for the economy
• Income: wage gains for workers are expected to continue in 2026 according to surveys conducted by groups like Payscale and Mercer, likely in the range of 3.0% – 3.5%, down slightly from 2025 (but outpacing inflation); Goldman Sachs expects real disposable personal income (a broader measure of spending power than wage gains) to grow more than 4% in 2026
• Loan Delinquencies: about 5% of the US population is experiencing third-party collections (being pursued by an independent agency to recover overdue debts) which quite low by historical standards and an indication of consumer health
• Trade: the US-led trade war started in March and accelerated in April; but trade deals were signed with different countries over the summer and into the fall, stabilizing trade relationships and improving prospects for economic growth
• Demand: a recent study by the San Francisco Fed shows that strong economic activity and strong demand for goods and services accounts for the majority of price growth in the economy; this is an improvement over the post-pandemic situation, where inflation was primarily a function of supply chain issues and supply shocks
• Taxes: The nonpartisan Congressional Budget Office estimates that changes in tax law are likely to boost economic growth by nearly one percentage point in 2026.
• Profitability: US companies, in aggregate, remain very profitable; in Q3-2025, large US companies grew earnings by 12% compared to a year ago; the delayed impact of lower interest rates will be supportive for company profits in 2026; and high profitability is generally supportive of stock prices

Regarding investments, many asset prices are unquestionably high. We’ve experienced three strong years of stock market returns: 26% in 2023, 25% in 2024, and 18% year-to-date in 2025.

While lofty stock market levels present some potential vulnerability for portfolios, it’s important to keep in mind that pullbacks and corrections are a normal part of investing.

In Q1 2023, stocks dropped by 9%. From mid-July to mid-August 2024, stocks declined by 8.5%. In 2025, stocks hit a new all-time high in February and then proceeded to fall 19% by early April.

Crises that lead to deep bear markets and long-term asset impairments thankfully occur once in a blue moon.

Part of my approach as a financial advisor is to keep my ear to the ground for behavior, developments, and situations that may sow the seeds of the next crisis.

There are a few situations that I am keeping my eye on, including:

• outsized borrowing by giant technology companies to fund AI-related investments
• the push by large investment firms to “democratize” access to private investments
• recent appearance of fraudulent activity (including at Tricolor and First Brands) that have resulted in sizable corporate bankruptcies

But for now, investors likely will be well-served to continue to go with the flow, and there is a reasonably good chance that in December 2026 we’ll be able to say, “all’s well that ends well”.

The stock market got fresh fuel during the last week of October in the form of positive earnings reports from large technology companies, which helped push stock indexes to a new all-time high.

Apple, Amazon, and Alphabet (Google) all posted revenues and profits that exceeded expectations and telegraphed solid outlooks for 2026. These three stocks combined make up 16% of the S&P 500 Index.

Thus far in 2025, the large company US stock index has closed at record levels on thirty six occasions – most recently on October 28.

The government shutdown, which persisted throughout the month and carried on into November, thus far seems to have had little impact on financial markets.

But the Federal Reserve’s decision to reduce interest rates has contributed to constructive market sentiment.

The Fed cut the Federal Funds Rate for the second time in 2025 on October 29, bringing the official target for short-term interest rates to a range of 3.75% – 4.0%.

Lower interest rates are generally viewed as supportive for stocks because when the Fed cuts rates, it often becomes less expensive for many companies to borrow money.

Cheaper loans can lead to increased investment in growth-related activities (like research, hiring, and expansion) which can boost company earnings in the future.

The Fed committee that determines interest rate policy meets again for the final time in 2025 next month.

Expectations are for another rate cut on December 10, which would bring the short-term interest rate target below 4% for the first time since 2022.

October was a positive month across the board for broad-based stock and bond market indexes, as the chart below shows.

Source: Moore Financial Advisors & Morningstar

And with ten months now behind us, 2025 is likely to be another strong year for financial market returns.

In fact, the last extended period of tough sledding for stocks happened more than three years ago. That bear market ended in October 2022, and stock returns have been stellar since then.

After three years of very strong returns, it’s natural to wonder: have stocks come too far, too fast? And, if so, is it time to sell risky stocks and move to the safety of cash before the tide turns and the next bear market arrives?

This type of inquiry centers around the idea of market timing: making buy or sell decisions based on predictions of future market movements.

If you can accurately predict what will happen tomorrow, making big moves with your money to “lock in gains” and “avoid losses” today is logical.

However, we’re unaware of anyone who can accurately and consistently predict what will happen in financial markets and to stock prices, especially over the near term.

Rather than trying to guess what will happen in financial markets tomorrow, or next week, or next month, taking a long-term approach to investing is a far better approach.

Building expectations for financial market returns, establishing asset allocation targets that support your financial plan, and ensuring that your portfolio reflects those targets are important elements of successful investing over the long term.

Attempting to “get ahead of the market” introduces the possibility of failing to capture future gains by not having enough stock market exposure, and falling short of the long-term returns required by your financial plan.

The well-regarded investor and author Peter Lynch has said: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections.”

These words of investment wisdom are worth paying attention to, particularly during extended periods of strong stock market returns.

-RK

September delivered another month of positive returns for investors:

• Russell 2000 Index of small company stocks returned 5.5%
• MSCI EAFE Index of foreign stocks returned 4.8%
• S&P 500 Index of large company US stocks returned 4.2%
• Bloomberg Aggregate Bond Index, the benchmark for US bonds, rose by 1.3%

US stocks reached new highs eight more times in September, bringing the tally in 2025 to twenty-eight new “all-time highs” for large company US stocks.

When viewed through a broader lens of the quarter (last three months):

• US small company stocks were the top performer, returning 10.5%
• US large company stock returns of 7.3% edged out foreign stock returns of 6.2%
• Bonds delivered a more muted return of 2.8%

Widening the aperture further still, the chart below shows US financial market returns by quarter for the last two years.

Source: MFA & Morningstar

Large company US stock returns are shown in black, US bond returns are shown in orange.

This picture illustrates a pleasing run of positive performance: only one quarter in the past eight has been negative for stocks, with quarterly average stock performance at 6%.

Bonds haven’t fared as well, but still the outcome still has been constructive for investors. With two quarters of negative returns and one of essentially zero return, quarterly bond performance has averaged 2%.

One of the questions at the front of mind for many investors is: will the positive trends persist?

Here’s some historical perspective: according to research from Jessica Rabe at DataTrek (an independent research firm), the odds are greater for returns to reach their high point for the year in the 4^th quarter when the stock market is having a good year.

DataTrek looked at annual returns each year since 1980 and catalogued the month in which the stock market peaked each year.

The table below shows stock market peaks by month; percent of time since 1980 that the stock market peaked for the year in that month; and average annual return when stock market peaked in a given month.

Source: DataTrek

Here are two key take-aways from DataTrek’s research:

• the S&P 500 has tended to reach its high point for the year in December when returns for the full year were strongly positive (this happened in 24 of the 45 years since 1980, or 53% of the time – bottom of the chart)
• the stock market has tended to reach its high point for the year in January when returns for the full year were strongly negative (5 times in 45 years, or 11% of the time – bottom of the chart)

As of Friday, October 3, US stocks had returned 15% year-to-date.

Applying her research to today’s market environment, Rabe at DataTrek concludes: “based on historical seasonal returns over the last 45 years, the S&P has significantly higher odds of peaking in the final quarter of this year rather than in September.”

It’s important to recognize that past performance doesn’t guarantee future results. But we can use history as a guide and as a way of informing our thinking about how things may unfold in the future.

While we avoid using terms such as “with certainty” and “without doubt”, the current environment of economic expansion, strong company earnings, and a Federal Reserve predisposed to bring down short-term interest rates seems conducive to a continuation of positive financial market trends, both for stocks and bonds.

That said, one area of emerging weakness which we’re watching closely is the US labor market.

The chart below from JP Morgan Asset Management presents monthly jobs gains using data from the Bureau of Labor Statistics. It shows that job growth slowed meaningfully over the summer of 2025.

Source: JP Morgan Asset Management.

Monthly jobs gains had been inflated because of “pandemic catch up” in 2021 and 2022 but still averaged over 200,000 jobs per month in the last couple of years through spring 2025.

This trend moved down to an average of 29,000 new jobs per month this summer.

If the employment situation downshifts further into persistent net job losses (yet to be determined) this could put downward pressure on US economic growth and put the stock market “good times” at risk.

And a new source of uncertainly stems from the shutdown of the US federal government. More information on that situation in next week’s upcoming blog “Government Shutdown Briefing”.

-RK

During the summer of 2025, financial markets have been somnolent – so far.

In a typical month which has 21 trading days, the S&P 500 index of large company stocks registers a daily rise or fall that exceeds 1% on average four times (trading days).

This means that about 80% of the time, stock market movements are unremarkable.

Since the summer solstice through the end of July, there were only two days when stocks moved more than 1% – and both were in a positive direction.

In this period of calm, stocks have been trending up, and the S&P 500 reached a new all-time high on July 28.

Recently, stock prices have been supported by company earnings reports for the 2^nd quarter of 2025, which have validated that corporate revenues and profitability are generally strong, and in many cases have exceeded Wall Street’s earnings estimates.

Somnolence “took a break” on August 1^st, however, when the Bureau of Labor Statistics (BLS) released its monthly employment report showing significant weakness in the labor market – and stocks proceeded to drop by 1.5%.

Specifically, downward revisions to May and June showed that 253,000 fewer jobs were created in these two months than previously reported.

In July, a net 73,000 new jobs were added – well below a level of 100,000 or more new jobs added per month that is commonly viewed as a sign of a healthy, growing economy.

The BLS employment report followed an announcement on July 30 which showed that the overall rate of growth of the US economy had slowed during the first half of 2025.

The Commerce Department said the value of all goods and services produced across the economy, or gross domestic product (GDP) grew at an average annual rate of 1.2% in the first six months of this year, a step down from the 2.5% average pace in 2024.

The weaker labor market, and slower pace of economic activity, may be enough to convince the Federal Reserve to change its policy and reduce its target for short-term interest rates – commonly referred to as a “rate cutting cycle” – as we approach autumn and head into winter.

So, recent data releases and stock price movements seem to indicate that both the US economy and the financial markets are at an inflection point.

If the current economic expansion holds up, and if the Federal Reserve begins to reduce interest rates soon, the stock bull market could continue to charge forward.

But if consumer spending sours, if businesses retrench, and if the economy goes from expansion to contraction, it could mean tougher times for stocks – even if the Federal Reserve cuts interest rates.

JP Morgan Asset Management researchers looked at the relationship between Federal Reserve interest rate policy changes and stock market performance against the backdrop of economic expansions and recessions going back 40 years.

The research shows:

• Stocks have done well when Fed rate cutting cycles have coincided with slower (but still positive) economic growth – large company US stocks climbed on average by 18% in the year following the first Fed interest rate cut of a new cycle
• When rate cuts coincide with recessions, stocks have suffered – losing an average of 5% in the year following the first interest rate cut of a new cycle

The key takeaway: consumer and business activity, along with the direction of Fed interest rate policy, will strongly influence the path along which financial markets will travel in the months ahead.

For the month of July, US stocks delivered satisfactory returns. Technology stocks did particularly well, gaining 4.6% for the month.

Tech stock strength helped to boost US large company stock returns, which gained 2.3% for the month. Small company US stocks rose by 1.7%.

The US bond index return was slightly negative last month as longer-term bond yields edged up.

And some of the steam was taken out of foreign company stocks, which declined by 2.1% in dollar terms, due primarily to a stronger US dollar.

The US dollar snapped its 5-month losing streak versus major developed economy currencies and rose by an average of 3% in July.

The chart below shows financial market performance for the month of July and Year-to-Date (YTD).

Source: Moore Financial Advisors & Morningstar

-RK

Wednesday, July 2 marks the halfway point for the calendar year of 2025 – 182 days behind us, with 1 Wednesday, July 2 marks the halfway point for the calendar year of 2025 – 182 days behind us, with 182 days remaining.

And summer has kicked off in the northeast with an intense heat wave. After a cool late winter and early spring, stocks, too, are sizzling once again.

The chart below shows the path thus far in 2025 of the S&P 500 Index of large company US stocks.

Source: Wall Street Journal

The release of the made-in-China, low-cost artificial intelligence (AI) model DeepSeek caused US technology stocks to wobble in late winter.

Then, the imposition of draconian tariffs by President Trump in early spring precipitated a stock market plunge of nearly 20% from the recent peak in February.

But a pause in the most severe tariffs allowed for a stock market rebound. As of Monday, June 30, stocks reached a new all-time high.

Top of mind for many investors: can the stock market good times continue to roll?

In the absence of further trade / tariff setbacks, the answer is: probably yes.

The near-term path now seems to favor stocks moving higher amid ongoing economic growth; greater certainty on taxes; contained inflation; the anticipation of falling interest rates by the fall; and a consumer that continues to spend.

For the intermediate term, the precise price path that any asset will follow is impossible to discern. The chart above could be Exhibit 1 supporting this statement.

But for long-term investors who map out a plan and stick to it, the odds of realizing a satisfactory return are quite good.

For example, JP Morgan Investment Management’s Guide to the Markets shows that, for a balanced portfolio of stocks and bonds (60% stocks / 40% bonds, rebalanced annually) returns for each and every 10-year period since 1950 have been positive.

For the month of June, US stocks were up 5.1%, foreign stocks rose by 2.4%, and US bonds returned 1.4%.

Year-to-date, foreign stocks were the biggest winner, up by 20%. A weaker US dollar has contributed to the stellar returns for US investors in foreign stocks. Also year-to-date, US stocks have climbed by 6% and bonds have returned 4%.

For a slightly longer historical perspective, the chart below shows returns by quarter for the past 12-month period for US stocks and bonds.

Source: Moore Financial Advisors & Morningstar

-RK

In Wayne’s World, the early 1990s cult-classic movie, protagonist Wayne and his sidekick Garth play street hockey on the neighborhood thruway. Automobiles pass frequently. Wayne and Garth don’t mind.

Street hockey provides an interesting model for thinking about financial markets. The cadence of shoot-score / shoot-miss / pause / move net off the street-move net back onto the street / restart is all part of the contest.

At times there are scores (when the market goes up). Other times, there are misses (when the market goes down). And, once in a while, external factors alter the field (for example, new and confusing government policy changes).

But the game continues under all conditions and players have an easier time if they take the changes in stride and continue to move forward.

Drawing the analogy to today’s situation, we’ve just passed through a miss / pause / net off the street phase. The net is now back in the road and the play has restarted.

And what of all the concerns about tariffs?

Some of us remain gravely concerned about tariffs, and also about unconventional (and even radical) policy approaches.

But many investors seem to think that Trump learned a lesson back in April, when the rout in stocks, bonds, and the US dollar forced a suspension of much of the global tariff rollout.

The financial market consensus reached in early May was that the final tariff plan is likely to be far more modest than the initial plan revealed on “Liberation Day” in early April, which has cleared the way for a sizable stock market rally.

Also, earnings reported by large US companies for the first quarter of 2025 were generally better than feared, and recently released economic data has exceeded expectations.

Gloom was pervasive in April, but lifted a bit in May as results haven’t been so bad.

A corollary to earnings is the confidence evidenced by company managers through their willingness to continue to spend money on current projects, and plan for new projects that will support and grow their businesses.

According to information compiled by Bloomberg, most of the largest publicly-traded companies (71%) that provided guidance after Trump’s early April bombshell have decided to maintain their capital expenditure outlook.

About 8.5% of firms have increased their spending plans, while 18% have revised them lower; 3% have withdrawn guidance. These results show that business confidence largely remains intact.

Some moderation (or at least temporary reprieve) in the tariff regime, as well as business profitability holding up and business spending plans remaining mostly intact, paved the way for “Game On” in the financial markets.

The old saying “sell in May and go away” was a dud in 2025, because last month was the best performing May in a quarter century.

The chart below shows monthly stock market performance for each May going back to 1990.

Source: Bloomberg

A second old saying, “markets climb a wall of worry” is holding true for 2025. Uncertainty has been outsized, but nonetheless, most asset classes at home and abroad have now registered positive returns.

Here’s how the performance of various asset classes stacked for the month of May and thus far in 2025:

Source: Moore Financial Advisors & Morningstar

-RK

For drivers, a car U-turning on busy roadway is universally viewed as negative. For investors, the recent policy U-turn by the Trump administration on its busy tariff agenda was universally viewed as positive.

As the tariff announcements came fast and furious in early April, the financial markets took another leg down.

During four trading days early in the month (April 3^rd – 8^th) US large company stocks dropped by 12%.

This downdraft, on top declines registered in the first quarter, brought the cumulative drop in stocks close to a bear market – down 19% from the most recent high on February 19.

Then, President Trump said he’d pause tariffs on dozens of countries for 90 days after coming under intense pressure from business leaders and investors to reverse course.

On April 9, the stock market delivered a 1-day rally of 9% following that announcement.

As of the end of April, here’s how the situation stood with regard to tariffs:

• A 90-day pause on so-called “reciprocal” tariffs (apart from a 10% universal tariff)
• Further tariff exceptions for computers, smartphones and electrical equipment
• Some short-term exclusions from the 25% tariffs on imported vehicles and auto parts under consideration
• Conversely, the Administration has ratchetted up tariffs on China to 145%
• New levies on imported pharmaceuticals, lumber and semiconductors are expected in coming months

Beijing’s countermove was to raise tariffs on all US goods imported into China to 125%.

Financial market participants are now interpreting the situation as less of a global trade war, and more of a tariff showdown between the US and China.

This “less bad” news was enough to allow the stock market to turn back up during the second half of April.

When all was said and done (or, perhaps more aptly put, after all that was said), here’s how things shook out in the financial markets for the full month of April:

Note: Foreign Stocks = MSCI EAFE Index; Tech Stocks = Russel 1000 Technology Index; Bonds = Bloomberg US Aggregate Bond Index; US Large Co = S&P 500 Index; US Small Co = Russell 2000 Index

Year-to-date through April 30, here are returns for the above asset classes:

•  Foreign stocks, +12%
• Tech stocks, -10.4%
• Bonds, +3.2%
• US Large Co, -5.1%
• US Small Co, -11.6%

Positive momentum pushed the stock market up further during the first two days in May.

By the close of trading on Friday, May 2, the S&P 500 index of large company US stocks had rallied for nine straight trading sessions and had reclaimed all losses registered in April.

The quick recovery from April’s intense bout of crisis-like volatility indicates that investors seem believe the American economy isn’t about to slide into recession, and that it will take a much bigger shock to push stocks into a bear market.

-RK

Given the developments that have occurred in early April – implementation of draconian trade policy and a sharp drop in stocks – the first quarter of 2025 already seems like ancient history.

The three main developments during the January – March 2025 period were:

Stocks reached new all-time highs in mid-February, but didn’t stay at those lofty levels for long as tariff concerns set in

1. Foreign stock returns exceeded US stock returns by the widest margin in some time, helped by a weakening US dollar
2. Bonds provided ballast for portfolios by delivering positive returns

Here’s a snapshot of quarterly stock and bond performance for the last four quarters:

Note: US Large Co = S&P 500 Index; US Bonds = Bloomberg US Aggregate Bond Index

-RK

Our January Market Update highlighted “beneath the surface” turbulence in the financial markets. In February, that turbulence emerged, pushing stock prices lower – and pressure accelerated into early March.

The US stock market hit a new all-time high on February 19. But the mood in the US financial markets, which had been generally positive since election day, shifted due to investors’ nervousness driven by:

1. The lofty prices of big tech stocks
2. The possibility of slower economic growth
3. Repercussions related to trade policy and tariffs

Since mid-February, technology shares have been leading the way lower for US stocks. From the February peak to the close of trading on March 10, the Nasdaq 100 technology-focused stock index declined by 12.9%.

Declines in the broader stock market have been less pronounced. The S&P 500 Index of large company stocks has declined by 8.6% from the mid-February peak.

Interestingly, foreign-company stocks have held up relatively well, with the benchmark MSCI EAFE Index of 21 developed countries (excluding the US and Canada) rising by about 1% since February 19.

The repercussions related to trade policy and tariffs are unclear at this point because the policies themselves are unclear, with the administration taking an on-again, off-again approach to both policy formulation and implementation.

However, consumers’ concerns amped up in February. Worries about the future direction of the US economy were displayed in two monthly surveys:

The University of Michigan’s Index of Consumer Sentiment for February declined sharply from the January reading, and inflation expectations took a big step up from January. This monthly survey polls at least 500 individuals each month from across the US.

A separate survey of consumers, conducted by The Conference Board (which interviews approximately 300 consumers each month) showed similar results: a steep decline in consumer confidence, marking the third straight decline, and an increase in inflation expectations.

Below is a chart showing the Consumer Confidence Index, published on The Conference Board’s website. The blue line shows the history of the Consumer Confidence Index. The grey bars indicate periods of economic recession.

According to The Conference Board, a reading below 80 generally indicates a potential recession is ahead, based on consumers’ short-term outlook for income, business, and labor market conditions. Currently, the data is healthy distance from signaling recession.

A senior economist of global indicators at The Conference Board had this to say about February’s survey: “References to inflation and prices in general continue to rank high in write-in responses. Most notably, comments on the current administration and its policies dominated the responses.”

Without clarity on policies that will affect jobs and the cost of goods and services, consumer concern likely will stay high, and consumer activity may downshift.

Because consumers make up the largest component of the US economy – consumer spending accounts for roughly two-thirds of Gross Domestic Product, or GDP – financial market participants smell trouble, which has pressured stocks.

For the month of February, large-company foreign stocks (MSCI EAFE Index) came out on top and gained 3.1%. US investment-grade bond returns (Bloomberg Aggregate Bond Index) also were appealing, with a gain of 2.2%.

Large-company US stock returns, measured by the S&P 500 Index, declined by 1% in February. Technology shares, measured by the Nasdaq 100 Index fell by 2.7%, and Small-Company US Stocks fell by 4.8% (CRSP US Small-Cap Index).

Here’s a snapshot of February market performance (note that returns from the first week of March are excluded from the chart below):

Note: Foreign Stocks: MSCI EAFE International Index; US Small Co: CRSP US Small Cap Index; US Large Co = S&P 500 Index; US Tech Stocks: Nasdaq 100 Index; US Bonds = Bloomberg US Aggregate Bond Index

-RK

Stock and bond market performance for the first month of 2025 was pleasing.

Foreign stocks gained 4.8%, US small company stocks climbed 3.9%, US large company stocks went up 2.7%, and technology shares rose by 2.1%. Bonds were in the black, too: high-quality, intermediate-term debt returned 0.5%.

However, there was turbulence beneath the surface of the stock market, mainly due to developments in the technology sector.

One part of the Artificial Intelligence environment is Large Language Models (LLMs). These AI-powered systems are trained on massive amounts of text data, which facilitate human-like text responses to a wide range of prompts and questions.

ChatGPT is a widely recognized and utilized LLM. It was developed by OpenAI, of which Microsoft holds a minority ownership stake.

All the big tech companies, including Alphabet (Google), Amazon, Apple, Meta (Facebook), Microsoft and Tesla are spending huge amounts of money investing in LLMs and anticipating big future payoffs on this invested capital.

In addition to these well-recognized firms, a constellation of lesser-known US companies (big and small) that supply software, equipment, storage, and energy to support AI initiatives have been riding the AI wave higher.

In mid-January, a new chatbot called DeepSeek caught the attention of tech investors for several reasons: it was developed cheaply; it runs on less-expensive equipment; it is fast; and it is good. Also, its maker is a small Chinese company, not a Silicon Valley behemoth.

Whether or not DeepSeek becomes a true competitive threat to US technology companies is yet to be seen.

But it was a shot fired across the bow of US technology companies, and some US tech stocks swooned for a few days at the end of the month.

Why does this matter for US investors? The main reason is that the US stock market has become more dependent on ever-higher profits, and ever-higher stock prices, from big tech.

The information technology sector has grown from about a quarter of the US stock market a few years ago to more than one-third today.

When the future profitability of US tech companies is called into question, and when tech stocks slip, it’s harder now for stocks in other sectors to pick up the slack.

This also means that even US investors who hold well-diversified portfolios are likely to feel pain if a correction in tech stocks materializes.

In January, tech turbulence was contained to a few days, and stocks generally finished higher at the end of the month.

However, the DeepSeek tremor was a reminder that troubles for technology companies, if sustained, would probably have far reaching effects for all investors.

Regarding the safer side of investing, the “big news” in the bond market for January was: no news.

The Federal Reserve held their first FOMC meeting of 2025, where interest rate policy is reviewed and discussed, and… nothing happened.

Market participants are now expecting the Fed to stand pat for a while, and to keep the target for short-term interest rates steady for the next six months. This contrasts with the “rate cuts” that occurred during the second half of 2024.

Why is no news from the Fed big news?

It likely means savers will continue to enjoy a satisfactory rate of return on their guaranteed money that is kept in high-yield bank savings accounts and bank CDs.

With the lower bound of the Fed Funds target rate at 4.25%, this probably means short-term CDs are likely to provide a 4%+ annual percentage yield (APR) during the first half of 2025.

It also means that the Fed remains vigilant in their fight against inflation.

If the Fed is successful in convincing market participants that inflation is indeed under control, it should translate to a hospitable environment for investors who own intermediate- and longer-term bonds.

With 10-Year Treasuries yielding about 4.5%, it’s reasonable to expect 5%-plus returns for 2025 from bond allocations in investment portfolios, if inflation, and inflation expectations, remain contained in 2025.

But a trade war could be problematic for financial markets.

An emerging risk, especially to the bond market, is a new tariff regime. On February 1, President Trump announced new tariffs on a range of goods coming into the US from Canada, Mexico, and China.

Trade is huge, diverse, and complex, so the ultimate impact of higher duties isn’t easy to know. A lot depends on size, width, and length: how high tariffs go, how broadly they’re applied, and how long they last.

If tariffs come and go quickly, the inflationary impact will be minimal. But a new regime with high tariffs applied to many trade partners that lasts for an extended period could usher in higher inflation.

If expectations about future inflation go up substantially, this will likely mean higher bond yields, with lower prices and lower returns for bonds – especially for intermediate and longer-term bonds and bond funds.

And if history does rhyme (to paraphrase Mark Twain) then resurgent inflation may well prove to be a challenge for stocks, too.

Performance for the month of January is pictured below:

Note: Foreign Stocks: MSCI EAFE International Index; US Small Co: CRSP US Small Cap Index; US Large Co = S&P 500 Index; US Tech Stocks: Nasdaq 100 Index; US Bonds = Bloomberg US Aggregate Bond Index

-RK