January’s stock market performance often garners significant attention, and for good reason—historical trends suggest it can set the tone for the year. The S&P 500 ended the first month up 2.7%, and when January returns exceed 2%, history points to a strong year ahead.
The chart below examines all instances since 1950 when the S&P 500 gained more than 2% in January, highlighting the returns over the following 11 months and the full calendar year.
(Source: Carson Investments)
2025 marks the 33rd occurrence of this trend. In the previous 32 instances, the S&P 500 finished the year positive 87.5% of the time, with an average gain of 18.4%. For comparison, since 1950, the index has been positive 72% of the time, averaging a 9.5% return. Of the four instances with negative returns, only one saw a double-digit decline—2001, which followed the aftermath of the 9/11 attacks.
Breadth Expanding?
Market returns over the past two years have been largely driven by the Magnificent 7 stocks. However, growing concerns over the Chinese AI tool, DeepSeek, and its potential impact on the technology and semiconductor industries have led to other areas of the market doing the heavy lifting.
The chart below illustrates the S&P 500’s overall return and the percentage of those gains attributed to these seven stocks.
(Source: DataTrek)
In 2023, the Magnificent 7 stocks accounted for 83% of the S&P 500’s total return, and in 2024, they contributed 73% of the overall gains. However, as January came to a close, all market growth came from the “Other 493” stocks—a healthy shift away from reliance on these major companies.
The US Dollar & Tariffs
The strength of the U.S. dollar plays a crucial role in shaping stock market trends. The chart below highlights the dollar’s peak in 2022, which weighed on the broader market. As the dollar weakened, stocks rebounded in 2023 and 2024.
(Source: AllStar Charts)
Since October 2024, the U.S. dollar has strengthened by about 5%, creating a typically challenging environment for stocks. December’s market weakness was largely attributed to this rise. Now, with tariffs in focus, investors worry that further dollar appreciation could add pressure to equities.
Currently, the dollar sits at a key level of 107.38, representing a 61.8% retracement from its 2022 highs and the 2024 low of 100. Why does this matter? Traders watch these levels as potential “resistance,” where a reversal could occur. In short, while tariffs may be unsettling investors, if this resistance holds, it could provide much-needed relief for stocks and support the ongoing rally.
Articles We’re Reading
EU cautions that US tariffs on the bloc could be hurtful on all sides and would generate a firm response (Bloomberg)
US pushing for Ukraine to quickly hold elections after potential ceasefire with Russia (Reuters)
New SEC leadership says it needs to approve any new probes (Reuters)
EU fertilizer companies press for more significant tariffs on Russian firms accused of dumping (FT)
Market Snapshot
For the Month Ending 1/31/2025 (Cumulative Returns)1
1Source – Morningstar, Inc. Corporate Bonds is presented as the iShares iBoxx $ Investment Grade Corporate Bond ETF. Municipal Bonds is presented as the iShares National Municipal Bond ETF. High Yield Bonds is presented as the iShares iBoxx $ High Yield Corporate Bond ETF. 10 Year Treasury refers to the valuation of a 10 Year Treasury Note, a debt obligation issued by the U.S. Department of the Treasury. Fed Funds Target represents upper limit of the federal funds target range established by the Federal Open Market Committee. Inflation Rate provided for the purposes of this report by the U.S. Bureau of Labor Statistics. Unemployment Rate calculated by the U.S. Bureau of Labor Statistics. WTI Crude Oil refers to the price of a barrel of West Texas Intermediate NYMEX) Crude Oil. Gold – Spot Price relates to the valuation of an ounce of gold, as traded on the NYSE Arca Exchange. U.S. Dollar refers to the U.S. Dollar Index (DXY). All Returns are denominated in USD (United States Dollar), unless otherwise explicitly noted.
Did You Know?
The world’s first recorded tariffs date back to ancient Egypt around 3000 BCE. The Egyptian Pharaohs implemented trade taxes on goods entering and leaving the Nile Delta, primarily targeting luxury items like spices, textiles, and precious metals. These early tariffs served multiple purposes: generating royal revenue, protecting local merchants, and controlling the flow of international trade. Merchants were required to pay a percentage of their goods’ value at designated customs points, with rates varying based on the type and origin of the merchandise. This system laid the groundwork for modern international trade regulations and taxation practices.
Presented by the Investment Committee of Lake Street, an SEC Registered Investment Adviser
The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. Diversification does not ensure a profit or guarantee against a loss. There is no assurance that any investment strategy will be successful. Investing involves risk and you may incur a profit or a loss.
