Monthly Market Insights - January 2025
Greetings Team,
Tariffs, Tech Shakeups & the Fed’s Next Move – What Investors Need to Know
As we kick off 2025, we find ourselves at the crossroads of major economic shifts. The stock market is off to a strong start, but don’t get too comfortable just yet. Policy decisions, tech upheavals, and a cautious Federal Reserve are making sure there’s never a dull moment.
Tariff threats are back in style, with President Trump floating a 25% tax on imports from Mexico and Canada, and 10% on China, stirring up concerns about inflation and trade wars. Meanwhile, China’s DeepSeek AI bombshell sent Nvidia tumbling in a historic selloff, shaking confidence in US AI supremacy.
To top it all off, Federal Reserve Chair Jerome Powell kindly reminded everyone that interest rate cuts will not come as quickly as Wall Street had hoped. Let’s break down how these developments are shaping markets—and how you can navigate the path forward.
A Strong Start to 2025
After stumbling in late 2024, markets came roaring back in January:
- S&P 500: +1.65%, closing at 6,040
- NASDAQ: +.03%, finishing at 19,627
- DOW: +4.24%, reaching a record 44,544
The Dow Jones index led the charge, powered by energy, industrials, and financials, while the tech-heavy Nasdaq limped behind after AI stocks took a beating after China’s DeepSeek surprise.
The Federal Reserve kept rates steady at 4.25%–4.50%, GDP growth landed at 2.3% for Q4, and inflation held firm at 2.8%. Meanwhile, jobless claims dropped, proving once again that the U.S. labor market is like that one houseplant you always forget to water—but somehow, it still thrives.
Trump’s Tariffs:
President Trump once again dusted off his favorite economic weapon: tariffs. This time, he’s threatening a 25% tax on imports from Mexico and Canada, and 10% on China, supposedly to combat border security issues and fentanyl trafficking. However, the more likely scenario is that this is just a negotiating tactic aimed at pushing these countries into renegotiating trade agreements more favorable to the U.S.
Markets, however, weren’t sure whether to panic or shrug it off. Energy stocks popped, with traders betting that tariffs on Mexican and Canadian oil could push U.S. crude prices higher, propping up domestic producers. But elsewhere, retailers, automakers, and manufacturers got nervous—higher import costs could mean higher prices for consumers or squeezed profit margins for businesses.
Federal Reserve Chair Jerome Powell is monitoring the situation closely, but even he admits nobody really knows how this will play out. If tariffs push inflation higher, the Fed might be forced to keep rates elevated longer than planned. On the other hand, if they slow down growth, Powell could be pressured to cut rates sooner than expected.
For now, tariffs remain the market’s favorite guessing game, and investors in trade-sensitive sectors should buckle up for some turbulence.
China Seeks Deeply
In a plot twist worthy of a sci-fi thriller, China’s DeepSeek AI debuted as a budget-friendly alternative to Nvidia’s high-powered AI chips. The result? Nvidia lost $593 billion in market value in a single day: the biggest one-day wipeout in US stock market history for a single security. The selloff spread like wildfire, dragging AI stocks down by over $1 trillion before bargain hunters swooped in for a partial recovery. Investors are now scrambling to figure out whether AI stocks are the future or just the latest speculative bubble.
The reality? AI is here to stay, but not all AI companies are created equal. Nvidia still dominates the high-performance AI sector, and it’s far from finished. But this selloff is a reminder that markets move fast and chasing hype without checking the fundamentals is a recipe for disaster.
Fed Still Cautious (Unsurprisingly)
In other words, if you were hoping for a rate-cut party in early 2025, Powell just canceled it. Sorry, but it seems the Fed is in no rush to cut. The central bank is waiting for either inflation to drop further or the labor market to weaken before making any commitments. Powell reaffirmed the Fed’s 2% inflation target and dismissed the idea of shifting policy just because the markets want it. Adding to the uncertainty, the Fed isn’t sure how Trump’s tariff plans will impact the economy, making their decisions even trickier.
For borrowers, this means relief is still on the horizon, but the horizon has a way of being a lot farther than we expect. For banks and income-focused investors, higher-for-longer rates could be a win.
Looking Ahead: 2025’s Biggest Themes
- U.S. Economy Still Strong: Despite aggressive rate hikes, the U.S. economy just won’t quit. Consumers are spending, businesses are investing, and unemployment remains near historic lows. Under the Trump administration, pro-business policies like tax cuts and deregulation could extend the rally. But tariff risks are a wildcard that could shake things up.
- AI Volatility Creates Buying Opportunities: AI is the future, without question. But not every AI stock is a winner, and the DeepSeek selloff proved that hype alone isn’t enough. Investors need to realize this exploding sector is still very much up for grabs and focus on tech companies with real revenue, strong competitive advantages, and sustainable growth.
- Bonds Are Back: After years of being the least exciting asset class, bonds are making a comeback. With rate cuts expected later in 2025, yields on existing municipal bonds, Treasuries, and corporate debt are becoming more attractive, especially for income-focused investors looking for stability.
- Quality Stocks Will Outperform: The market rewards companies with strong balance sheets, consistent earnings, and real cash flow. Speculative, debt-reliant companies? Not so much. As 2025 unfolds, quality (not hype) will be the name of the game.
Final Thoughts: How to Stay Ahead
So far, 2025 is shaping up to be a year of opportunity—but only for investors who play it smart. The AI hype cycle is spinning fast, tariffs are lurking, and the Fed isn’t budging just yet.
What is the best approach for savvy investors, you ask? We think it’s sticking to quality stocks, avoiding overpriced speculation, and staying nimble. Keep an eye on tariff developments, position for higher-for-longer rates, and don’t get caught chasing overhyped AI stocks. It’s going to be a wild ride. But if you stay informed and adaptable, there’s plenty of upside to capture this year.
Onward and upward!
Steven and Daniel
STEVEN W. SCHMITT, MBA, CFP®, CPM®, CRPS®, ADPA®
Managing Director, Private Wealth Advisor
CA Insurance # 0G61253
The Schmitt Group of Raymond James
Raymond James & Associates, Inc. // 3CV
61 S. Paramus Road Suite 360, Paramus NJ 07652
Direct 551.497.5531 // Text 201.559.0775 // eFax 201.291.4298
steven.schmitt@raymondjames.com
raymondjames.com/schmittgroup
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