January was yet another strong month for global equities, continuing the trend of the last two years. A number of regional stocks exchanges made new all-time highs despite concerns that the new US administration would unleash new tariffs which could significantly impact global trade. Company earnings season was generally positive and earnings growth in aggregate remained strong which helped drive positive sentiment. The MSCI ACWI (NZD Hedged) was up 3.3%, and is up nearly 23% on a rolling 1-year basis. The NZ Dollar remained well below U$0.60 but moved slightly higher off recent lows meaning the MSCI ACWI Index (NZD unhedged) was up 2.4% (+31.4% rolling 1-yr). Global bonds posted a small gain in January, the Bloomberg Global Agg Index (NZD Hedged) advanced 0.4% for the month, while the NZ Composite Bond Index was flat. Australia, Europe and UK equity markets delivered strong returns posting gains of 4.6%, 8.0% and 6.1% respectively. For once the US lagged the broader market, and the New Zealand market was a laggard posting a small loss of -0.9%.
Economic data out of the US remained solid over the first month of 2025, a strong US jobs report and a better-than-expected inflation print offset concerns that new tariffs would roil global trade. While a number of new tariffs were announced, many do not kick in for some time, and some were quickly reversed or diluted! The US Federal Reserve left short term rates at 4.25%-4.5% as expected. After 1% of interest rate cuts in 2024 they have left the door open to ease further in 2025 if economic conditions deteriorate. Central banks in the UK and Europe continued to cut interest rates as economic growth continued to be weak - not recessionary - but well below par of long-term average. Japan continued to move against the trend of lower interest rates, the Bank of Japan raised the policy rate to 0.5%, their first hike since July 2024.
A notable feature of the January equity market rally was the broadening out of key drivers, both in terms of regions and sectors. For a lot of the last 2 years the ‘magnificent 7’ have driven huge parts of the advance higher. Communications Services (+7.8% in USD) was the best performing sector in January, but Healthcare (+6.1%) and Financials (+5.8%) also did very well. Cyclical sectors including Industrials, Consumer Discretionary and Materials also outperformed the broader market while the largest sector, Information Technology, was the weakest sector falling -1.1%.