CIO Monthly Observations - February 2025
Monthly Observations
February 3, 2025
The S&P 500 started the new year with an impressive 2.7% return in January, while the MSCI All Country World index gained even more, rising 3.3% in the first month of the year. The Bloomberg BarCap U.S. Aggregate Bond index also had a strong start, increasing 0.5% in January.
The stock market had an auspicious start to the year, although a late month swoon took $1 trillion in market cap out of the index after a Chinese company shocked the world, with a much more inexpensively designed artificial intelligence program, despite strict US sanctions on powerful computer chips. Most of the damage was done in a single day, but after investors had time to digest the news, the index bounced back over the rest of the week as buyers returned.
Monthly Highlights
A Chinese artificial intelligence startup upended US markets
President Trump intends to impose large tariffs on Mexico, Canada and China The Fed left rates unchanged in January, waiting to see the path of the economy
News in Review
A Chinese startup called DeepSeek released an Artificial Intelligence (AI) chatbot that had similar capabilities to US companies’ most advanced chatbots, such as ChatGPT, and caused a one-day selloff of close to $1 trillion as investors sold shares of large US tech companies, fearing their dominance was in doubt. Some stocks – such as Nvidia – fell far more than the overall index, but the damage was limited to a 3% drop on the day and much of that was recouped by the end of the week.
Trump Says 25% Tariffs on Mexico and Canada are Coming Soon
President Trump said he would impose a 25% tariff on all goods coming from Mexico and Canada and would increase the existing tariffs on China by an additional 10%. Most economists worry that the tariffs will lead to a trade war which will slow economic growth in the US and potentially send Mexico and/or Canada into recession. It’s unclear whether this is a negotiating tactic or part of a larger strategy that may last for a short period of time or for a period of years.
Fed Pauses Interest Rate Cuts Amidst Uncertainty
The Federal Reserve decided to leave interest rates unchanged on January 29th, despite having lowered them a total of 1% over the previous three meetings, citing concerns about the uncertainty of the new administration’s fiscal plans. They pointed out that inflation had continued to come down from the highs of 2022, but that that it was still above their 2% target. In addition, there is a lot of uncertainty on tariff, immigration and fiscal policy, so they weren’t “in a hurry to adjust” interest rates.
Anchorage Museum Wins Auction for Alaska Railroad’s Golden Spike
The Anchorage Museum won an auction to buy the “golden spike” that completed the Alaska Railroad back in 1923. President Harding lightly tapped it twice on July 15, 1923 before using a regular spike in its place. The ceremonial golden spike was then sent to Army engineer Frederick Mears, who was in charge of the Alaskan Railroad project. It had been sold to various private owners over the years until an unidentified seller put it up for auction. Now it will be back on display in its home state of Alaska, thanks to help from private donors and the city of Nenana (the site of the final coupling).
DISCLOSURES
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This newsletter was written and produced by the Independent Advisor Alliance, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 INDEX: The Standard & Poor's 500 Index is an unmanaged, capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
NASDAQ 100 INDEX: The Nasdaq 100 Index is an unmanaged, capitalization-weighted index of the largest 100 non- financial stocks traded on the Nasdaq market. Unlike the S&P 500 it does not represent all major industries and may be more volatile than more broadly constructed indices.
MSCI ACWI INDEX: The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 24 emerging markets (EM) countries. With 2,495 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Bloomberg U.S. Aggregate Bond Index: The Bloomberg U.S. Aggregate Bond Index is a broad-based index of the U.S. investment-grade, fixed-rate bond market, including both government-related and corporate securities and mortgage- backed and asset-backed securities.
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