Monthly Market Update for January 2025

Monthly Market Update for January 2025

Key Points – Monthly Market Update for January 2025

• Stocks and Bonds Rebound in January Following a Rocky December
• Diverse Sector Performance
• Treasury and Corporate Bonds in Line with Broader Index
• Fed Pauses Interest Rate Cutting Cycle
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Monthly Market Update for January 2025

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S&P 500 Rebounds in January Following Choppy December

Welcome to the Modern Wealth Market Update for January 2025, where we take a quick look at stocks, bonds, and the economy. In January, the U.S. stock market built on the prior years’ strong performance with the S&P 500 rising by a very solid 2.8%.₁

FIGURE 1 – S&P 500 Index Monthly Returns – Morningstar Direct

This monthly gain helped to recover most of the losses experienced in a choppy December and sets a positive tone for the year ahead with investors maintaining confidence despite potential challenges. 

What Sectors Are Driving the Market?

Sector performance was diverse, with the communication services, healthcare, and financials doing most of the heavy lifting.₂ Information technology, which is the largest of the 11 sectors, was the only negative sector for the month, declining by almost 3%.  

FIGURE 2 – S&P 500 Index – Sector – Morningstar Direct, GICS Sectors

Interestingly, large-cap value stocks, which returned 4.6% for the month, delivered more than double the gain of large-cap growth stocks. Among small-caps, the growth style outperformed value, 3.2% versus 2.1%. 

FIGURE 3 – S&P 500 Index – Size and Style – Morningstar Direct

In overseas markets, many countries outperformed the U.S. despite a strong dollar.₄ Brazil, Germany, and France were the standouts and reminded investors of the benefits of global diversification.  

FIGURE 4 – Equity Returns – Country  – Avantis Investors

Bonds Also Bounce Back in January

After declining nearly 2% in December, bonds bounced back in January with the Bloomberg U.S. Aggregate Bond Index returning 0.53%.₅ Both treasury bonds and corporate bonds were generally in line with the broader index, but high-yield corporate bonds significantly outperformed, delivering 1.37% on the back of further tightening of credit spreads. Municipal bonds advanced for the month and nearly matched the broad treasury market’s return. 

FIGURE 5 – Bond Market – Sector – Morningstar Direct and Bloomberg

Fed Pauses Interest Rate Cutting Cycle

Finally, in its meeting on January 29, the Fed opted to maintain the federal funds rate at 4.25% to 4.50%, pausing the rate cuts initiated in September 2024.₆ They noted that economic activity continues to expand at a solid pace and that the labor market conditions remain strong, but inflation remains somewhat elevated. This decision reflects the Fed’s cautious approach amid uncertainties, including potential changes in fiscal policies including tariffs. 

Do You Have Any Questions?

That concludes your Monthly Market Update for January 2025. If you have any questions about what I covered in our Monthly Market Update for January 2025 and what it could mean for you, start a conversation with our team below.

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Resources Mentioned in This Article

• 2025 Market Forecast and 2024 Year in Review
• Fed Rate Cut – Q3 2024 Quarterly Market Update
• Examining Municipal Bonds in 2024
• 10 Ways to Fight Inflation in Retirement

Other Sources

[1] https://www.morningstar.com/news/marketwatch/20250202132/here-are-januarys-best-and-worst-stocks-and-what-may-lie-ahead-for-them

[2] https://www.morningstar.com/news/marketwatch/20250202134/here-are-januarys-best-and-worst-stocks-and-3

[3] https://www.morningstar.com/markets/value-stocks-lead-start-2025-growth-retains-its-long-term-advantage

[4] https://res.americancentury.com/docs/avantis-mutual-fund-field-guide

[5] https://www.morningstar.com/funds/how-largest-us-etfs-performed

[6] https://www.federalreserve.gov/newsevents/pressreleases/monetary20250129a.htm