January 2025 - A volatile start to the year

5 mins

Stock markets and the economy

Publié le 07/02/2025 Mis à jour le 07/02/2025

January began on a promising note in the wake of the stock market rally at the end of 2024. But the optimism of the first few days was soon put to the test. With the storm caused by DeepSeek, the Chinese artificial intelligence startup, and the resumption of trade tensions under the Trump administration, investors had to cope with a series of shock waves. Despite the turbulence, most equity indexes finished the month in positive territory, buoyed by accommodative central banks.

February promises to be especially uncertain. The markets will continue to pay close attention to trade tensions and monetary policy adjustments.

AS AT DECEMBER 31, 2024

	Closing 31-01-25	Variation 31-12-24	Variation 31-12-24
Key interest rate in Canada (%)
Key interest rate in Canada (%)	3.00	-0.25 ▼	-0.25 ▼
Oil (WTI)
Oil (WTI)	$72.53	1.1% ▲	1.1% ▲
Gold
Gold	$2,798.41	6.6% ▲	6.6% ▲
EUR/CAD
EUR/CAD	1.50	0.8% ▲	0.8% ▲
JPY/CAD
JPY/CAD	0.01	1.9 ▲	1.9 ▲
USD/CAD
USD/CAD	1.45	0.7 % ▲	0.7 % ▲

Sources: Bank of Canada, Bloomberg Finance L.P.

CANADIAN MARKET

3.5% (S&P/TSX Composite 31-01-2025)

The S&P/TSX Composite Index was up 3.5% in January, despite Donald Trump’s threats to impose tariffs on Canadian imports. Its performance was driven mainly by the materials sector, especially gold, which reached a record high. Investor appetite for haven assets, fuelled by geopolitical uncertainty, was quite supportive of the gold price. Information technology and financials also buoyed the Canadian market.

On the monetary front, the Bank of Canada cut its key interest rate by 25 basis points to 3.0%. Its decision, based on signs of an economic slowdown and moderating inflation, was welcomed by the bond market. The FTSE Canada Universe Bond Index was up 1.2% on the month. Even so, the Canadian dollar weakened further against the world’s major currencies.

U.S. MARKET

3.5% (S&P 500 31-01-2025 in CAD)

The U.S. market had an eventful month. Although S&P 500 Index returned 3.5% in Canadian dollars and 2.8% in U.S. dollars, the numbers hide significant volatility. The month’s biggest shock came from the information technology sector: the arrival on the market of a low-cost artificial intelligence model launched by DeepSeek, a Chinese startup, caused a wave of panic. Investors suddenly began scrutinizing the viability of massive investments in artificial intelligence and semiconductors. Many companies in the sector saw their share prices plummet.

As for the U.S. Federal Reserve, it opted to leave its key rate unchanged, preferring to wait for clearer signals before taking easing measures.

INTERNATIONAL MARKETS

6.0% (MSCI EAFE 31-01-2025 in CAD)

The developed markets outside North America were the best performers during the month. The MSCI EAFE Index returned 6.0% in Canadian dollars and 4.8% in local currencies. All sectors, without exception, recorded gains.

The advance was driven mainly by expectations of monetary easing in Europe. The European Central Bank responded by lowering its key rate by 25 basis points to 2.75%, giving the equity markets a second wind.

EMERGING MARKETS

2.5% (MSCI Emerging Markets 31-01-2025 in CAD)

The MSCI Emerging Markets Index was up 2.5% in Canadian dollars and 1.6% in local currencies. The information technology sector was the main performance driver, especially companies in China, South Korea and Taiwan. That being said, India was a laggard. The Indian market was held back by disappointing earnings and macroeconomic concerns related to inflation and slowing growth.

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Sources: Bank of Canada, FTSE International Limited, S&P Dow Jones Indices LLC and MSCI Inc.

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