Market index returns

Week to date since January 22, 2025 as of January 29, 2025

Index definitions: Global Real Estate = FTSE EPRA/NAREIT Developed Index; Global Infrastructure = Dow Jones Brookfield Global Infrastructure Index; Natural Resource Equities = S&P Global Natural Resources Index; Commodity Futures = Bloomberg Commodity Index; TIPS = Barclays US TIPS Index; Global Equities = MSCI World Index; Real Assets Index = 30% FTSE EPRA/NAREIT Developed Index, 30% Dow Jones Brookfield Global Infrastructure Index; 15% S&P Global Natural Resources Index; 15% Bloomberg Commodity Index, 10% Barclays TIPS Index. Source: Bloomberg, DWS. Past performance is not indicative of future results. It is not possible to invest directly in an index.

Market commentary:

Global equity markets gave some performance back over the week. The news of the week was the recently released artificial intelligence (AI) model from China-based DeepSeek that promised strong capabilities at a much lower price tag. This triggered a cascade of repositioning as investors tried to ascertain the impact on capex spending, chip and data center demand, and the competitive landscape. The timing of the announcement raised eyebrows, coming shortly after U.S. President Trump’s announcement of the Stargate public/private initiative to secure the United States’ pole position in the AI race. As we will discuss in the sector-specific areas below, the sell-off might have been a knee-jerk reaction given the outstanding importance and needs of the digital infrastructure sector. Not to be outdone generating headlines, President Trump directed the Office of Management and Budget to order a freeze of spending and disbursements aimed at so-called “woke” programs, however, the order was quickly rescinded as chaos followed. The healthcare sector was also impacted by the potential for lower social spending from programs such as Medicaid and Medicare.

Among other indicators we track, the VIX, an index of expected S&P volatility, bounced 10% to 16.6. U.S. inflation breakeven yields rose 5 basis points (bps) for the 5-year segment, while falling 1bp in the 10-year segment. The U.S. dollar weakened marginally, ending at 108 for the DXY index, an average of the dollar’s performance against major peers. Investment grade credit spreads were unchanged while high yield spreads widened 7bps. The U.S. high yield market has a large energy company component and would have been impacted by the negativity in the sector. Gold prices were also up marginally, climbing almost $3 to $2,759. Oil prices fell 4% to $72.62/barrel after digesting potential adjustments to the global supply and demand mix.^[1]

Against this backdrop, Treasury Inflation-Protected Securities (TIPS) and Global Real Estate Securities outpaced the broader equity market, which beat the Real Asset Index. Global Infrastructure companies fell the most, followed by Commodity Futures, and Natural Resource Equities, which all landed in negative territory. Within the Global Real Estate Securities regions, Japan outperformed, followed by the UK, and Europe ex-UK, while Australia, the U.S., and Canada hampered performance. From a sector perspective, Developers and REITs in Japan outperformed, while the Specialty, Data Center, and Office segments suffered in the U.S. Regional themes were similar in the Infrastructure sector with Europe outperforming and the Americas lagging. The Americas Rail, UK Infra, and European Utilities segments outperformed but were outweighed by a poor showing by Oil Storage and Transport in the Americas. Within Commodities, Livestock and Agriculture outperformed, while the Energy and Industrial Metals sectors lagged. Finally, within Global Natural Resource Equities it was a similar story as Agriculture companies led the way and Energy and Metals & Mining companies lagged as the threat of February 1 tariffs being levied by the U.S.^[1]

Why it matters: Volatility will probably remain, well…volatile. Diverging central bank policies, potential trade wars, and new administrations pushing new priorities should keep investors sharpening their pencils in the coming months. We believe that real assets should play a role in investors’ portfolios as they could benefit the risk/return profile in a variety of economic and market conditions.

Macro Dive: This week, we review central bank activity, European sentiment, and economic activity, and finally, recent economic data for the U.S.

• Raise, Fold, Hold:  Central banks held meetings during the week. The U.S. Federal Reserve’s FOMC held rates steady at its last meeting. Fed Chair Powell noted that the committee was “not in a hurry” to make further policy rate adjustments as the U.S. economy continued to perform and disinflation progress slowed. The European Central Bank (ECB) cut rates 25bps to 2.75% as inflation has been reading closer to their target. Euro inflation was 2.4% (annualized) for December as price growth in the service sector has been stubborn around the 4% level. The Eurozone economy faces headwinds to growth, such as the threat of tariffs from the U.S. and higher natural gas prices. The Bank of Japan also diverged as they hiked overnight rates 25bps to 0.50% as inflation has been sticky and real rates remain in negative territory.^[1]
• Die Hoffnung stirbt zuletzt (Hope dies last):  In the latest 'What Worries the World' survey by Ipsos only 26% of the respondents described Germany's current economic situation as 'Very good' or 'Somewhat good,’ setting a new 10-year low “good economy” score. Although the IFO Business Climate Index improved slightly (from 84.7 points in Dec to 85.1), companies, especially from the manufacturing and construction sectors, were even more skeptical about the coming months. The Q4 GDP data, which was released this week seems to have proven the respondents' impression. The German economy fell by -0.2% compared with the third quarter of 2024, which was lower than expected. While household and government consumption expenditure increased, exports were significantly lower than in the previous quarter. Germany lowered its growth outlook for 2025 to 0.3%. France did the same, as its economy also has been struggling lately. Meanwhile, both Spain and Italy reported solid growth, with Spain outstripping official forecasts and leading the Eurozone growth.^[2]
• U.S. Economy:  The economy grew 2.3% (annualized) for the fourth quarter on the strength of personal consumption. The Core PCE Price Index, a key inflation input for the Fed, was 2.5% quarter-on-quarter, which was a touch faster than the prior quarter’s reading of 2.2%. December’s print was 0.2% month-on-month, accelerating from November’s 0.1%, while the year-on-year reading came in at 2.8%, which matched the prior month’s print. Decelerating inflation progress appeared to affirm the Fed’s caution in holding rates steady. Jobs data, which fuels the engine of consumer spending, was slightly better for the prior week as initial jobless claims slowed to 207k, down from 223k in the previous week, and below expectations of 225k. Continuing claims for unemployment also slowed to 1858k, below estimates of 1902k, and down from the recent high point of 1899k. We continue to watch employment and inflation data to provide insight into the Fed’s ability to continue with rate cuts.^[1]

Real Assets, Real Insights: This week we will look at the potential impacts of the recent technology developments and government announcements.

• Digital Demand  (Real Estate):  The DeepSeek development prompted reassessments of the AI trajectory and the demand growth estimates for various segments of the infrastructure. The market narrative has landed on the improved inference model within DeepSeek may result in a moderating data center growth in the out years (2027/2028) hence moderation of the bull case for additional electric capacity. During their earnings call Meta was unwilling to say they would necessarily need less capex as they think they’ll have a billion users and their data center fleet can be fungible.  Microsoft said 2026 capex will be lower but in some part they are short of capacity in their base Azure business so the 2025 $80 billion spend is trying to catch up with demand. The bull case is that this is just another model innovation in a long line of moves to win efficiency gains; and it’s open-source, so these innovations can be incorporated broadly by others, making models more efficient. The bulls point to Jevon’s Paradox, wherein lower prices accelerate usage and create new use cases. This reminds a lot of folks of the early days of cloud adoption. Lower cost to operate foundational models frees up resources and R&D budgets to develop apps and create new use cases.^[1]
• Power Hungry  (Infrastructure):  The infrastructure sector is a critical component of the digital landscape. Energy demands continue to grow and being able to meet that demand will require new energy sources, generation capacity, and additional delivery networks. We also note that large companies such as Alphabet (Google), Meta, and Microsoft, have announced capital spending plans that include partnering with electric utilities to add capacity by restarting mothballed plants and building new gas and nuclear power plants. Many have reaffirmed their plans following the DeepSeek announcement. We expect that demand and capital spending will not likely change for this calendar year or next, but efficiency gains could be a medium-term headwind if capital isn’t directed to other efforts such as inference.^[1]
• Nyet alyumineeyoom  (Commodities):  The European Union prepared a proposal to ban imports of aluminum from Russia. The approach would be gradual over a one-year period to allow importers to adjust. In 2024 the EU imported over 320k tons of aluminum from Russia, which was 6% of total imports. In addition to a phased ban on imports, sanctions would also be levied against oil shipping, technology, and the financial sector. All EU members would need to back the proposal, which could change before being finalized and could face resistance from Hungary. The price of aluminum rose in London into the close of our review period as a result. Traders also remained focused on the potential supply disruption as the U.S. administration promised tariffs on China, Canada, and Mexico to begin as soon as February 1st.^[1]