Stock Funds Rose 3.6% to Start Year
The nonstop news from the White House didn’t shake investors in January. Also: A Financial Flashback to 40 years ago, the ‘Volcker rally’ that sent the dollar to a high.
Fund investors in January absorbed the fast and furious news coming out of the new administration in Washington, rewarding their patience with solid gains.
The average U.S.-stock fund posted a return of 3.6% in January, according to data from LSEG, formerly Refinitiv Lipper. That built on the 17.4% gain that stock funds registered for all of 2024. (See funds-data tables including Mutual-Fund Yardsticks.)
Tariffs… interest-rate uncertainty… the DeepSeek artificial-intelligence bombshell. Investors watched it all, with heads spinning, but largely stuck by their guns.
“Tariff news is developing on top of a U.S. economy that is still very strong. This should provide some ballast against trade developments in the near term,” says Lauren Goodwin, economist and chief market strategist at New York Life Investments.
“The U.S. election results in November have boosted both business and consumer confidence,” says Linda Bakhshian, deputy chief investment officer of equities and multi assets at Macquarie Asset Management. That said, stock valuations “remain elevated,” Bakhshian says, so “earnings growth will be crucial to support stock performance in 2025. And be prepared for volatility.”
International-stock funds were up 4.5% in January—nearly as much as in all of 2024, when the funds gained only 4.8%, significantly lagging behind their U.S. counterparts.
Bond funds were also up for the month. Funds focused on investment-grade debt (the most common type of fixed-income fund) posted an average return of 0.6%, adding to the 1.8% gain for all of 2024.
FINANCIAL FLASHBACK
A look back at Wall Street Journal headlines from this month in history
40 YEARS AGO: The Dollar’s ‘Volcker Rally’
After World War II, the U.S. dollar became the world’s top reserve currency, and the global economy flourished. But fast-forward to 1985, and things got a bit out of control.
The dollar index—a measure of the greenback’s value against a basket of major currencies such as the British pound and the German mark—hit an all-time high of 160. There seemed to be “no end in sight to the dollar’s strength,” as The Wall Street Journal quoted one banker in late February of 1985.
It was called the Volcker Rally, recalls Win Thin, chief strategist at Brown Brothers Harriman. Paul Volcker headed the Federal Reserve and successfully crushed U.S. inflation by raising short-term interest rates to 20%.
Deregulation from the Reagan administration and corporate tax cuts helped boost stocks. And higher U.S. rates meant the dollar became a magnet for foreign capital, sending the dollar sky-high, Thin says. “It was sort of exceptional.”
The good news was that a strong dollar meant cheaper U.S. imports. But exports became massively expensive. At the same time, dollar-denominated commodities sank, with wheat prices shedding 29% from $3.89 a bushel in August 1983 to a low of $2.75 in 1985.
U.S. farmers, manufacturers and tech firms suffered under the rally, and they demanded change. The result was a September 1985 meeting at the New York Plaza Hotel, where an agreement was made to depreciate the greenback relative to the other major currencies. It became known as the Plaza Accord and resulted in avoiding new tariffs on imports.