Monthly Market Review - January 2025
In January 2025, markets regained their upward momentum after a December correction, continuing the long-term uptrend across equities, bonds, and gold. Despite some fluctuations, overall performance remained strong, driven by favorable economic indicators and solid corporate earnings. However, volatility emerged in the tech sector with the rise of Chinese AI startup DeepSeek, which launched an advanced AI model at a fraction of the cost incurred by U.S. firms. This development pressured industry leaders like Nvidia, leading to sharp price swings. The MSCI World Islamic Index gained a solid 2.6% in January, while the Dow Jones Sukuk Index edged up 0.5%.
The U.S. economy grew at a 2.3% annualized rate in Q4 2024, slightly below expectations, and ended the year with a 2.8% GDP increase (versus 2.9% in 2023) The unemployment rate stood at 4.1% and has been fluctuating between 4.1% and 4.2% over the past few months, reflecting a stable labor market. Inflation remained a key focus, with the Consumer Price Index (CPI) rising to 2.9% year-over-year in December, up from 2.5% in August. The Federal Reserve maintained the federal funds rate, signaling a cautious approach as it monitors inflation trends.1 Meanwhile, the U.S. Manufacturing PMI rose to 50.1, returning to expansion territory for the first time in six months, signaling a potential industrial recovery. Markets reacted cautiously to Donald Trump’s inauguration, as investors assessed the potential economic impact of the new administration’s fiscal policies keeping tariffs at the center of the discussion.
The UK economy showed signs of strain, with inflation edging higher in recent months. The Consumer Price Index (CPI) rose to 2.5% year-over-year, signaling renewed price pressures.2Meanwhile, manufacturing activity showed some recovery, with the PMI ticking up to 48.2 from 47.2 last month. The Bank of England is expected to cut rates by 25 basis points to support a stalled UK economy, balancing growth concerns against rising inflation.
The Eurozone faced similar challenges, with manufacturing activity contracting for much of the year. The manufacturing PMI stood at 46.2 in January, reflecting ongoing pressure in the industrial sector. The ECB lowered rates by 25 basis points as inflation reached 2.4% YoY due to a low base and another cut is expected again in March.3,4
On the global front, China’s manufacturing PMI dropped to 49.1, indicating contraction, while GDP for Q4 exceeded expectations, growing 5.4% year-over-year. The property market continued to face difficulties, with home prices in top cities falling by over 7% from the previous year.5 CPI dropped to 0.1% year-over-year, the lowest in eight months. The markets are expecting the PBOC to take measures to support the economy, especially considering the incoming tariffs.
Looking ahead, global markets are expected to remain sensitive to central bank policies and geopolitical developments. Risks tied to inflation, trade policies, and industrial slowdowns will require careful navigation. Investors are encouraged to maintain a diversified portfolio to manage potential volatility and capitalize on emerging opportunities in 2025.6
Sources
- Federal Reserve issues FOMC statement. (2025, January 29). Retrieved from https://www.federalreserve.gov/newsevents/pressreleases/monetary20250129a.htm
- (Partington) Partington, R. (n.d.). Signs of returning UK inflation give Bank of England interest rate dilemma. The Guardian. Retrieved from The Guardian: https://www.theguardian.com/business/2025/jan/24/uk-inflation-bank-of-england-interest-rate-dilemma-flash-pmi?
- Monetary policy decisions. (n.d.). Retrieved from https://www.ecb.europa.eu/press/pr/date/2025/html/ecb.mp250130~530b29e622.en.html
- Eurostat. (n.d.). Retrieved from Annual inflation up to 2.4% in the euro area: https://ec.europa.eu/eurostat/web/products-euro-indicators/w/2-17012025-ap?
- Reuters. (n.d.). China home prices, sales slip further in January. Retrieved from https://www.reuters.com/markets/asia/china-home-prices-sales-slip-further-january-report-shows-2025-02-01/?
- All other Data sourced from Bloomberg – Economic Indicators
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As with any investment, a Wahed Invest Ltd investment puts your money at risk, as the value of your investment can go down as well as up. The tax treatment of your investment will depend on your individual circumstances and may change in the future. If you are unsure about whether investing is right for you, please seek expert financial advice.
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