Stock Market
It was a wild final week of trading in January, but that didn’t stop the major indexes from ending the month in positive territory. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all posted gains, even after a roller-coaster ride fueled by earnings reports, the Federal Reserve’s latest decision to keep interest rates steady, and some big AI news out of China—where startup DeepSeek unveiled a powerful, low-cost AI model.
For the month of January, the stock market’s three major indices performed as follows:
S&P 500 2.7%
The Dow 4.7%
Nasdaq 1.6%
It was the third straight positive month for the Nasdaq, while the Dow and S&P 500 bounced back from losses in December.
Inflation
According to the U.S. Bureau of Labor Statistics, the Consumer Price Index for All Urban Consumers (CPI-U) rose by 2.9% on an annual basis in December 2024. That’s only a moderate increase compared to 2.7% in the prior year-over-year period ending in November.
The month’s increase was 0.4% compared to 0.3% in November. Economists had predicted a 0.3% monthly gain and a 2.9% year-over-year increase, matching the actual annual figure but falling short of the monthly rise.
Energy prices were the largest driver of inflation in December, climbing 2.6% and accounting for over 40% of the monthly increase. Gasoline prices alone surged 4.4% for the month.
Excluding the volatile food and energy sectors, core CPI advanced by 0.2% in December, following consistent 0.3% increases over the prior four months. Over the last 12 months, core CPI rose 3.2%, slightly easing from 3.3% in November.
The slightly higher-than-expected inflation figures align with the Federal Reserve’s outlook, which anticipates fewer interest rate cuts in the coming year.
Employment
The U.S. labor market ended 2024 on a strong note, with total nonfarm payroll employment rising by 256,000 in December, according to the U.S. Bureau of Labor Statistics. This figure significantly surpassed economist expectations of 153,000 new hires. The unemployment rate remained steady at 4.1%, marking little change over the past seven months.
December’s job gains were led by growth in health care, government, and social assistance sectors, while retail trade rebounded with job additions, recovering from losses in November.
GDP
The U.S. economy continued to grow in Q4 2024 but at a slower pace. Real GDP increased at an annualized rate of 2.3%, down from 3.1% in Q3. This growth was primarily driven by consumer and government spending, though tempered by declines in investment and exports.
For the full year, GDP grew 2.8%, slightly below 2023’s 2.9% pace. Growth was fueled by consumer spending, investment, government spending, and exports, though imports also rose.
Fed and Rates
At their January 28-29 meeting, the Federal Reserve decided to hold interest rates steady at 4.25% to 4.5%. This pause reflects concerns over stalled inflation progress, as officials removed previous language suggesting continued improvement toward the 2% target. While the Fed remains optimistic about long-term inflation control, it acknowledges that a definitive victory is still not within immediate reach.
The first rate decision under President Trump’s new term, analysts caution that economic policies such as potential tariffs, mass deportations, and a push for increased domestic oil production could fuel inflationary pressures, reversing recent gains. These factors may heighten tensions between the president and the central bank, especially as Trump has expressed a desire for greater influence over Fed policy decisions.
Real Estate & Mortgage
Mortgage rates have shown mixed trends this month, creating uncertainty for prospective buyers. The average daily rate for a 30-year fixed-rate mortgage increased to 7.149%, up 0.064 percentage points, adding further affordability challenges.
Meanwhile, Freddie Mac reported that the average 30-year fixed-rate mortgage dropped below 7% to 6.96%, while 15-year fixed rates fell to 6.16% in January, largely driven by signs of cooling inflation earlier in the month.
However, new concerns over proposed tariffs on imports from major trading partners have pushed Treasury yields higher, causing daily mortgage rates to rise in response.
Contrarian Investing
Contrarian investing, though challenging, can be incredibly rewarding for those willing to go against consensus. While trend-following often succeeds during market rallies, contrarian strategies shine during reversals, capturing opportunities others overlook.
For instance, research reveals that 56% of “fin-fluencers” significantly underperform the market, emphasizing the value of independent, data-driven investment decisions.
Legendary contrarians illustrate the power of this approach. Warren Buffett, holding over $200 billion in cash, is betting against current market euphoria by waiting for undervalued opportunities. Michael Burry, known for shorting the 2008 housing bubble, is now heavily invested in Chinese equities, defying geopolitical and economic concerns. Meanwhile, Jim Rogers is preparing for a potential U.S. recession by acquiring gold, silver, and commodities, anticipating their value as safe havens.
Contrarian investing isn’t for the faint-hearted. It requires strong conviction, the ability to endure criticism, and a focus on companies or assets poised to exceed market expectations. By developing unique hypotheses and staying disciplined, investors can capitalize on opportunities hidden in the crowd’s blind spots.
Notable Quote
“The goal of a successful investor is to make the best possible decisions when the odds are in their favor.”
-Howard Marks