Great Start to 2025

February 1, 2025

January is traditionally a good month for the market as it is the month with the largest inflow of money into retirement accounts.  Regardless of your income, if you participate in a 401(k) plan you contribute in January.  The “Goldilocks” economy we had near the end of last year continued into the new year with a growing economy while interest rates, inflation and oil prices moved lower.  Things are “just right” and that is a great environment for stocks.  We thought the new year might bring more attention to value stocks and diminish the interest in AI related activities and both the “30-stock” Dow Industrial Average and the “value” ETFs outperformed tech stocks.  We would not be surprised to see that theme continue this year.  The month began with the market edging lower but then the 401(k) contributions flooded in, sending the S&P 500 to multiple new all-time highs.  At the end of the month the S&P 500 had gained 2.7%.  Oil had a volatile month ending with a gain of 1% and gold rallied 6.3% to a new all-time high.  Interest rates remain elevated but closed the month unchanged.

The month began quietly on a Thursday but rallied heading into the weekend.  We began the first full week with an upbeat report from Foxconn, the Taiwanese company that manufactures electronic components for many U S companies and the optimistic report sent the tech stocks higher and the overall market came along for the ride.  On Tuesday, Nvidia, one of the leading companies driving AI, hit a new all-time high before dropping 8% on what appeared to be profit taking.  The market took a break on Thursday for President Carter’s National Day of Mourning, and closed the week with a government jobs report that far more jobs were created in December than expected.  Interest rates had been rising on concerns about the strong economy driving inflation so the “good news” on jobs was actually “bad news” for inflation and sent the S&P 500 down nearly 2%.  At the end of the first 7 trading days the S&P was down .9%.  The second full week began with interest rates rising to the highest level since November of 2023.  On Wednesday, the government released their monthly Consumer Price Index and while it showed upward movement the all-important shelter “housing & rent” component showed the biggest decline in 3 years.  The market focused on that component of the report and jumped nearly 2%.  The rally continued to the end of the week driving the S&P 500 up 2.9% and giving us the best week for the market since the election.  The following week was once again shortened by the Martin Luther King Jr. holiday but was dominated by excitement about Trump 2.0, which sent the S&P 500 to another new all-time high and a gain for the week of 1.8%.  The final week began with a story that Chinese startup DeepSeek had managed to achieve artificial intelligence (AI) using older, lower costs computer chips, which raised questions about the vast amounts of money being spent on AI and sent Nvidia to the largest one-day market cap loss of any company in history! The market rebounded the following day as doubts were raised about what exactly DeepSeek was able to achieve.  The week ended with a quarterly report from Apple that was better than many had feared, but the S&P ended the week down 1%.

February is one of only two months that have historically closed with no gain or loss.  The month has closed higher just 52% of the time, making it the second weakest month for market performance after September.  It also has the lowest chance of “winning” other than September.  The period from November 1 through January 31 is traditionally the best period for stocks, accounting for nearly 50% of all gains for the year.  February may simply be a pause after that traditionally strong time of the year where investors digest recent gains.  We are in a Goldilocks environment where inflation seems to be cooling, interest rates appear to be flattening, oil prices are slowly declining, and we have just begun a 4-year term for a very pro-business President.  With that said, stocks are historically very richly valued and due for a breather.  Our cash levels are higher than usual, and we are approaching new investments with caution.  With that said, valuations may be high because of the optimism investors are feeling about Trump 2.0.  We would not be surprised to see a period of profit taking, but we will be buyers of any tradeable rally.

If you know someone who would be interested in learning more about Greenberg Financial Group, please contact us at 520-544-4909, or visit our website at www.greenbergfinancial.com. As always, the key to successful investing is to have a portfolio that is consistent with your investment objectives and risk tolerance. We invite you to listen to our weekly Money Matters radio show which airs every Sunday Morning from 8:00 AM to 10:00 AM on KNST AM 790.  You can also listen to us on iHeart radio, follow us on Twitter @gbergfinancial or on Facebook under Greenberg Financial Group.  Previous radio shows are available by going to www.iheart.com or using the iHeart app and typing Money Matters with Dean Greenberg.