With the start of the new year, the markets have been more volatile due to technological developments, policy shifts, and economic indicators.

Technological Developments:

US tech companies experienced a sharp decline in January, due to the launch of a new Chinese Artificial intelligence application called DeepSeek. Founder Liang Wenfeng developed a model similar to OpenAI's ChatGPT using a fraction of the billions Silicon Valley is spending on AI technologies. This sparked panic in the markets leading to the Nasdaq Composite losing 3.07%, falling to 19,341.83, and the S&P 500 slid 1.46% to 6,012.28, driven by a 13% drop in Nvidia's share price resulting in a $465 billion loss. The largest in U.S. stock market history. Other major tech firms, including Microsoft, Meta, and Alphabet also faced substantial declines leading to tech stocks posting their worst one-day performance since 2020.

Despite this challenge, the stock market rebounded towards the last week of January. Trump administration officials discussed reducing chip sales to China following the emergence of the DeepSeek AI model. Nvidia's stock rebounded by over 8%, while the Nasdaq Composite and S&P 500 indices gained approximately 2% and 1%, respectively. The market’s quick recovery highlights investors’ long-term confidence in U.S. tech companies.

Economic Situation:

The US displayed mixed economic signals. The U.S. Federal Reserve kept its benchmark interest rate unchanged at 5.25%–5.50% during its January 2025 meeting, despite growing market speculation about potential cuts as Federal Reserve System chair Jerome Powell emphasized that inflation had cooled but was still above the 2% target. This is due to the labor market remaining strong and the unemployment rate stabilized, thus removing the need for rate cuts. This decision had mixed reactions as some investors were hoping for a cut, and others saw the Fed's cautious approach as a sign of economic stability.

In contrast, Canada lowered its policy rate from 3.25% to 3.00% in January, making it one of the first major central banks to ease monetary policy. Canada’s economy showed signs of slowing, with GDP growth revised down from 2.1% to 1.8% for 2025. The Bank of Canada is concerned about rising borrowing costs. President Donald Trump announced plans to impose a 25% tariff on imports from Canada and Mexico, scheduled to take effect on February 1, 2025. It is anticipated that the tariffs will cause a decline in the Canadian dollar value, an increase in the costs of goods and services, and a rise in inflation.

Forecast for February 2025:

As February approaches, several factors are expected to influence market dynamics. Analysts predict a narrowing gap between growth and value stocks, suggesting a more balanced market. Investors are advised to focus on sectors with strong earnings potential. Furthermore, geopolitical considerations such as trade tensions between the US and China and the US and Canada may introduce market volatility. Investors should monitor closely, as they could impact global supply chains and market sentiment.

January 2025 was marked by significant market volatility, driven by technological disruptions, policy changes, and ongoing economic uncertainties. While certain sectors faced challenges, investors stayed optimistic, particularly regarding anticipated policy shifts under the renewed Trump administration. February 2025 presents a complex landscape for investors as uncertainty rises and tensions between countries rise.

Works CIted:

Banerji, Gunjan. “Stock Investors like Trump 2.0.” The Wall Street Journal, www.wsj.com/finance/stocks/stock-investors-like-trump-2-0-871074ac. Accessed 28 Jan. 2025.

Evans, Brian, and Lisa Kailai Han. “S&P 500 Closes Lower as Fed Pauses Rate Cuts, Nvidia Resumes Slide: Live Updates.” CNBC, CNBC, 29 Jan. 2025, www.cnbc.com/2025/01/28/stock-market-today-live-updates.html.

Timmer, Jurrien. “January 2025 Stock Market Outlook.” Fidelity, 15 Jan. 2025, www.fidelity.com/learning-center/trading-investing/rocky-start#:~:text=One%20particular%20source%20of%20volatility,rates%2C%20combined%20with%20high%20valuations.