Market volatility surged last week as investors reacted to fresh economic data, geopolitical developments, and unexpected policy shifts. While initial panic in the AI sector rattled confidence, a wave of strategic dip-buying signalled resilience and a long-term growth outlook. Meanwhile, macroeconomic forces, central bank moves, and political manoeuvres in the US are reshaping investment landscapes, leaving market participants recalibrating their strategies.
The past week saw the AI sector temporarily shaken following revelations about Deep Seek’s underwhelming performance compared to its US counterparts. Nvidia and related AI stocks witnessed a sell-off, only to be stabilised by further analysis indicating that the Chinese company at the centre of the storm had significantly increased its semiconductor investments. This initial panic quickly turned into an opportunity for retail investors, who aggressively bought into the Nasdaq-100 tracker ETF, driving the largest inflow in four years. Whether this was a well-timed strategic move or a case of market exuberance remains to be seen.
Despite a weaker-than-expected US GDP growth of 2.3% for the fourth quarter, down from the previous 3%, investor appetite for American equities remained undeterred. Inflationary pressures, as reflected in the 4.2% Personal Consumption Expenditures index reading, did little to shake confidence in the broader market. Meanwhile, the European Central Bank responded to economic stagnation by cutting interest rates by 25 basis points to 2.75%, reinforcing a commitment to stimulating growth in the region.
January’s strong performance across all major US indices has also raised hopes that the ‘January Barometer’—a historical pattern suggesting a positive January signals a strong year for stocks—will hold true. Since 1950, data shows that a positive January has led to an average annual return of 16.8%, while a negative start to the year has often resulted in declines.
Political risks entered the spotlight over the weekend as former US President Donald Trump announced a sweeping round of tariffs on key trading partners, including a 25% levy on imports from Mexico and Canada and a 10% tariff on Chinese goods. While initially disruptive, these tariffs were swiftly postponed amid ongoing negotiations. At the same time, the Trump administration unveiled a series of executive orders aimed at reducing federal expenditure, including suspending US military aid to Ukraine, mandating in-person attendance for government employees, and integrating blockchain technology into federal financial tracking.
Market reactions to these policy shifts were swift. Investors quickly sought safety, leading to sell-offs in risk assets, particularly in crypto and semiconductor stocks. The US dollar strengthened significantly, creating headwinds for ex-US currencies and debt holders. Meanwhile, gold reached a new milestone, surpassing $2,800 per ounce and reinforcing its role as a premier store of value in times of uncertainty.
As investors digest these developments, the overarching theme remains clear: volatility creates both risks and opportunities. Strategic positioning, informed decision-making, and an ability to navigate market sentiment will be key in capitalising on emerging trends.
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