January marked the inauguration of President Donald Trump and a shift in policy from the outgoing Biden administration. Expectations for the sequencing of tax cuts, tariffs and foreign policy changes were altered, with tariffs leading the charge. The U.S. Dollar Index fluctuated over the month, falling from a peak of 109.96 on Jan. 13 to a low of 107.34 on Jan. 27 as President Trump threatened 25% tariffs on Mexico and Canada and an additional 10% tariff on China. The S&P 500 Index returned 2.78% on the month, though the ride wasn’t a smooth one, largely due to the emergence of Chinese ChatGPT rival DeepSeek causing some AI-related stocks to drop precipitously. U.S. Treasury rates were relatively unchanged in the period, with the two-year and 10-year declining 4 basis points (bps) and 3 bps, respectively, while the 30-year rose 1 bp. Despite the roiling market news, the Bloomberg US Aggregate Bond Index remained relatively steady and ended the month up 0.53%. Outside of the U.S., central bank policy diverged, including the European Central Bank (ECB) lowering the deposit rate by 25 bps to 2.75% and the Bank of Japan (BOJ) hiking interest rates by 25 bps to 0.5%, the highest level in 17 years.
