Economic Overview - Efficient Private Clients
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Economic Overview

12 January 2025 Economic Overview - By efpc


It was a strong start to the new year for global markets, although not a very smooth one. Following Donald Trump’s inauguration as the 47th President of the United States (US), he issued several executive orders and kept markets on their toes with back-and-forth tariff threats, while corporate earnings reports and inflation fears added to the volatility. Developed market equities mostly ended the month higher, despite regional disparities in economic and geopolitical factors. European equities led the charge in developed markets, with the STOXX Europe 600 climbing 6.3% to reach a new record high. US equities also managed to end January in the green, despite lagging their developed market counterparts. Notably, the equally weighted S&P 500 managed to outperform the official index by more than 70 basis points, owing to market breadth improvements and the market sell-off frenzy of technology stocks caused by the emerging Chinese artificial intelligence (AI) competitor, DeepSeek.

Locally, equities and bonds rallied, with the All Share Index closing the month 2.32% higher, despite a slightly mixed bag of economics. The Purchasing Managers’ Index’s data disappointed, showing a further contraction in manufacturing from 46.2 in December, to 45.3 in January. In terms of monetary policy, the South African Reserve Bank’s Monetary Policy Committee, supported by inflation moving in line with expectations, reached a split agreement (six in favour and two against) to lower the repurchase rate by another cautious 25 basis points to 7.5%. The announcement was welcomed not only by equities but also by bonds, helping the All Bond Index close the month 0.44% higher.

Other highlights included:

  • US earnings performance: By the end of January, 36% of S&P 500 companies had reported earnings, with 77% surpassing earnings-per-share estimates, in line with the five-year average. The blended earnings growth rate for the quarter stood at 13.2%, the highest year-over-year growth since Quarter 4 of 2021.
  • AI growth setback: The AI growth narrative faced a setback as China’s DeepSeek AI model triggered a sell-off in AI stocks, which saw Nvidia lose a total of $400 billion market cap in a single day. This raised concerns about US tech spending, pricing power, and the US’ position in the global AI race. Fears about Big Tech valuations and AI cost savings cast doubt on capital expenditure plans. However, the initial shock was potentially overstated, as DeepSeek’s breakthroughs can be replicated by other players.
  • Stronger commodity prices supported resources: The resources sector returned more than 16% in January, rebounding after the December sell-off, as commodity prices rallied during the month. Gold and platinum were particularly well-supported. South Africa, one of the world’s largest producers of precious metals, stands to benefit from improved commodity prices and an improved outlook for resource companies.