January highlighted the risk to investors posed by high US stock market concentration and lofty earnings expectations, underscoring the importance of diversification. For equities, we saw a change to the status quo, with the UK (+6.2%) outperforming the US (+3.6%), and value stocks beating their growth counterparts. Bond markets saw heightened volatility as some of Trump’s inflationary policies came into effect, while other regions saw interest rate cuts.
UK
- The FTSE 100 Index was up +6.2% in January, reaching a record high (8,674) as investors turned bullish on more rate cuts.
- Sentiment was lifted as the Office for National Statistics revealed inflation had slowed to 2.5% in December.
- Rachel Reeves outlined her views on getting growth back on track in the UK, including backing a third runway at Heathrow Airport.
- Concerns over the UK’s fiscal health became more pronounced in January, causing an increase in gilt yields and weakening currency.
Global
- The Federal Reserve (Fed) kept interest rates on hold and signalled that there may be no further cuts forthcoming.
- US shares gained in January but lagged other regions as Chinese start-up DeepSeek challenged US leadership in artificial intelligence.
- The US technology sector fell but other sectors advanced, with communication services, healthcare and financials among the top gainers.
- Non-farm payrolls data indicated a robust US jobs market, with 256,000 jobs added to the economy in December, which was above expectations.
- The eurozone benefitted from a rotation out of US tech stocks in January, while worries over trade tariffs eased.
- The European Central Bank cut interest rates for a fourth consecutive time to 2.9%, following poor economic data.
- The Bank of Japan raised its policy rate by 25bps to 0.5%, a widely expected move that supported financial stocks, particularly banks.
- Emerging markets rose in January but underperformed developed markets as ongoing tariff risks weighed on markets.
Fixed interest
- January was a month of contrasting trends for the global government bond markets.
- Signs of weaker growth in the UK resulted in a sharp rise in gilt yields (yields move inversely to prices), the 10-year finished at 4.54%.
- US Treasuries reacted to fears of Trump policies being inflationary, with the US 10-year Treasury ending the month at 4.55%.
- In the US, despite heavy supply, credit spreads in the investment grade corporate space remained unchanged.
- European and UK corporate bonds outperformed, with spreads tightening further.
- (Credit spreads are the difference in yield between a corporate bond and a risk-free government bond).
Other
- Prices of precious metals rose amid concerns over the impact of Trump’s tariff threats.
- The energy component of the global commodity index was supported by cold winter weather in much of the northern hemisphere.
- January was a strong month in digital asset markets, with Bitcoin trading in a range between $90,000 and $110,000 before ending the month up +10%.
- Attention was focused on Trump’s impact on legislating digital assets and the reduction of perceived SEC regulatory over-reach of digital assets.
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This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
