Weekly Capital Markets Update

Global equity markets finished higher for the week. In the U.S., the S&P 500 Index closed the week at a level of 6,101, representing an increase of 2.78%, while the Russell Midcap Index moved 4.52% last week. Meanwhile, the Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, returned 1.81% over the week. As developed international equity performance and emerging markets were both positive, returning 3.17% and 1.87%, respectively. Finally, the 10-year U.S. Treasury yield moved lower, closing the week at 4.62%.

The stock market kicked off the new year with mixed performance. While the S&P 500 reached a new record high, overall market activity was subdued due to the holiday-shortened week. Growth stocks outperformed value stocks, while large-cap companies generally outpaced their smaller counterparts.
Market sentiment was initially buoyed by the new administration’s early actions. The absence of immediate tariff increases, coupled with a more measured approach to trade policy, eased investor concerns. Additionally, the announcement of a massive $500 billion investment in artificial intelligence (AI) infrastructure by a consortium led by Softbank generated significant excitement within the technology sector.

However, economic data released late in the week offered a mixed picture. While manufacturing activity showed signs of recovery, consumer sentiment weakened amid rising inflation concerns. The bond market also exhibited mixed signals. Treasury yields edged higher, while municipal bonds outperformed due to strong investor demand for new issues. Investment-grade corporate bonds saw moderate activity, while the high-yield market experienced strong demand.

Overall, the week presented a mixed bag of news for investors. While positive developments in trade policy and robust corporate earnings provide optimism, the ongoing inflationary pressures and potential economic headwinds warrant continued monitoring.

An early update ahead of this week’s market open, once again related to AI and a Chinese startup company named DeepSeek: The rapid rise of AI companies has injected significant volatility into the stock market. As investors flock to AI-related stocks, we’re seeing increased market concentration, where a small number of companies dominate the sector. This concentrated exposure can amplify price swings and create a “bubble” effect where valuations become inflated.

Furthermore, the competitive landscape within the AI sector is highly dynamic. Rapid technological advancements and the constant emergence of new players can quickly disrupt market leaders and lead to significant shifts in market share. This uncertainty adds to the volatility and makes it challenging for investors to accurately assess the long-term prospects of AI companies. For these reasons, we believe it is prudent to work with financial professionals to ensure your portfolio is properly diversified and invested accordingly with your risk tolerance and objectives.

Best wishes for the week ahead!

Equity and Fixed Income Index returns sourced from Bloomberg on 1/24/25. Economic Calendar Data from Econoday as of 1/27/25. International developed markets are measured by the MSCI EAFE Index, emerging markets are measured by the MSCI EM Index, and U.S. Large Caps are defined by the S&P 500 Index. Sector performance is measured using the GICS methodology.

Disclosures: Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion and Walsh cannot guarantee the accuracy of said information and cannot be held liable. You cannot invest directly in an index. Diversification can help mitigate the risk and volatility in your portfolio but does not ensure a profit or guarantee against a loss.