
Market Update Week 5
Market Recap
WEEK OF January 27 - 31, 2025
The S&P 500 index shed 1% this week amid worries about competition in the technology sector and the Trump administration's tariff plans, but the market benchmark still ended January with a monthly gain.
The S&P 500 closed Friday's session at 6,040.53. While this marks a decline from a week ago, the index is still near its record high of 6,128.18 reached last Friday. It is also up 2.7% from the end of 2024 and up 25% from a year ago.
Also, the Federal Reserve's preferred inflation measure, the personal consumption expenditures price index, met expectations with a 0.3% increase for December. On Wednesday, the central bank's Federal Open Market Committee maintained the range of its policy rate at 4.25% to 4.50%, as expected, but made changes to its statement that showed inflation remains elevated while removing an acknowledgment of progress.
Nevertheless, investors are nervous about how inflation may be impacted by the Trump administration's planned tariffs. On Friday, White House Press Secretary Karoline Leavitt said President Donald Trump will begin implementing a 25% tariff on Mexico and Canada and a 10% tariff on China on Saturday.

Thought of the Week*
With 32% in the Magnificent 7 and another 19% in the rest of the technology sector, the S&P 500 is becoming a concentrated bet. Monday was a painful wake-up call when the release of Deep Seek’s new LLM sent semiconductors and tech tumbling 7.8% and 5.6%, respectively. Even though 70% of constituents ended the day up, the S&P 500 followed tech down 1.5%. While we don’t think the AI investment thesis has fundamentally changed, increased caution is warranted. Deep Seek's efficiencies could reduce costs, but compute requirements probably won’t go down. As technological advancements make AI more efficient, its cost decreases, demand for the products increases and compute requirements tick back up. However, with U.S. tech companies sporting winner-takes-all price tags, new competitors are a good reminder disruption is a feature, not a bug, of technological development.
Yet valuations leave little room for uncertainty. This week’s chart shows that markets have become increasingly underwhelmed by Mag 7 earnings growth despite the impressive results. During reports this week, a slight miss on sky-high expectations for AI growth was enough to trigger negative price action. As capital expenditures increasingly weigh on free cash flow, there will be even less room for imperfection. In short, Monday’s sell-off was the right thing but for the wrong reasons. While investors shouldn’t be worried about U.S. tech losing its AI advantage any time soon, they should be worried about crowding, concentration and elevated valuations. There are many reasons for enthusiasm, but it should be caveated with caution, especially amid the unpredictability of technological revolution.
*Source: J.P.Morgan Asset Management
Up Next
Economic data will feature January employment numbers (The Job Openings and Labor Turnover Survey - JOLTS) with ADP's private sector employment report on Wednesday and the government's nonfarm payrolls and unemployment rat due Friday. Other data on next week's calendar will include January automotive sales, December factory orders and wholesale inventories, and January consumer sentiment.
All the Best,
Gordon Achtermann, CSRIC®, MBA, CFP®
Gordon@yourbestpathfp.com
703-573-7325
Your Best Path Financial Planning delivers comprehensive planning and investment management to families and individuals, whether you live in Fairfax, Virginia, Northern Virginia, or nationwide.