Unadorned Notes: January 22-25, 2025
U.S. Jobless Claims Edge Higher; Home Sales Hit 29-Year Low; S&P 500 Hits Record High; Trump Rescinds Biden AI Order; CIA Suggests COVID Lab Origin
Economics, Finance, and Business
U.S. Jobless Claims Edge Higher: U.S. weekly jobless claims rose by 6,000 to a seasonally adjusted 223,000 for the week ending January 18, 2025, reflecting mild labor market adjustments. Despite the increase, layoffs remain historically low, and the broader labor market remains resilient. Continuing claims climbed to 1.899 million, the highest level since November 2021, signaling slower reemployment opportunities. Economists attribute the rise to factors such as California wildfires and adverse weather, though broader economic momentum remains intact. The Federal Reserve is expected to maintain interest rates at its upcoming meeting, citing stable labor market conditions and tempered inflationary pressures.1
Business Activity Slows, Hiring Rises: U.S. business activity fell to a nine-month low in January 2025, with the S&P Global Composite PMI declining to 52.4 from 55.4 in December 2024. The drop was driven by weaker growth in the services sector, though manufacturing expanded for the first time in seven months. Rising input costs and wage pressures pushed prices higher, with businesses passing these increases to consumers. Despite slowing output growth, hiring surged, with employment reaching its highest level in two and a half years. Inflationary concerns and uncertainty over trade and immigration policies continue to influence the Federal Reserve’s cautious stance on interest rates.2
Consumer Sentiment Declines in January: U.S. consumer sentiment fell in January 2025, with the University of Michigan’s index dropping to 71.1 from 74.0 in December 2024, marking the first decline in six months. The downturn was broad-based, driven by rising concerns about unemployment and potential inflation from proposed import tariffs. One-year inflation expectations remained at 3.3%, while long-term expectations edged slightly lower to 3.2%. About 47% of respondents anticipated higher unemployment in the coming year, the highest level since the pandemic recession. Despite modest income gains, economic uncertainty weighed heavily on consumer confidence.3
Home Sales Hit 29-Year Low: U.S. existing home sales fell to 4.06 million units in 2024, the lowest level since 1995, as high mortgage rates and record home prices constrained buyers. The median home price reached a record $407,500 in 2024, while mortgage rates hovered near 7%, further reducing affordability. Inventory improved 16.2% from 2023 but remains 3.7 million units below demand, partly due to homeowners retaining low-rate mortgages. December 2024 sales rose, driven by wage growth and increased inventory. Builders anticipate supply gains with deregulation efforts, though persistent affordability issues and elevated borrowing costs remain significant challenges.4
Home Sales Under Affordability Strains: U.S. existing home sales increased 2.2% in December 2024 to a 10-month high of 4.24 million units, driven by transactions for higher-priced properties. The median home price rose 4.7% in 2024 to a record $407,500, while housing affordability remains constrained by elevated mortgage rates near 7%. Inventory improved 16.2% from a year ago but remains 30% below pre-pandemic levels, with entry-level homes in particularly short supply. First-time buyers made up 31% of sales, below the 40% share considered necessary for a healthy market. Economists expect limited housing demand due to persistent affordability challenges and slowing progress on inflation.5
U.S. Equity Fund Outflows Slow: Outflows from U.S. equity funds fell to $3.2 billion in the week ending January 22, 2025, down from $8.26 billion the prior week, as cooling inflation expectations improved investor sentiment. Large- and mid-cap funds saw reduced outflows of $2.68 billion and $972 million, while multi-cap and small-cap funds experienced $1.53 billion and $290 million in net sales, respectively. Sectoral funds gained $2.74 billion, led by inflows into financials, industrials, and technology sectors. Bond funds attracted $8.83 billion in net purchases, driven by taxable fixed-income and municipal debt inflows, alongside strong demand for loan participation funds. Money market funds saw $32.86 billion in net investments, continuing a trend of robust inflows.6
S&P 500 Hits Record High: The S&P 500 reached a new intraday high of 6,100 on Wednesday, buoyed by strong earnings from Netflix, which surged 9.7%, and optimism over President Donald Trump’s pro-growth policies. Technology stocks, including Oracle and Microsoft, also rallied, pushing the Nasdaq Composite up 1.3%. European markets saw gains, with the Stoxx Europe 600 and Germany’s DAX hitting record levels as fears over U.S. tariffs eased. A rotation from U.S. to European equities accelerated, with only 19% of fund managers overweight on U.S. stocks in January 2025, down from 36% the prior month. Trump’s softened stance on tariffs has contributed to market optimism while supporting risk-on sentiment globally.7
Bank of Japan Raises Rates: The Bank of Japan raised its key interest rate to 0.5%, citing stable inflation near its 2% target and improving wage growth. BOJ Governor Kazuo Ueda reaffirmed the need for gradual rate increases, emphasizing a positive cycle of higher prices and wages. December 2024’s core inflation rose 3% year-over-year, and adjusted wage data showed a 0.5% increase in November 2024. Share prices initially dipped after the announcement but quickly stabilized, while the yen strengthened slightly against the U.S. dollar. The decision aligns with Japan’s shift away from its ultra-loose monetary policy and contrasts with recent rate-cutting trends in the U.S. and Europe.8
China, Hong Kong Stocks Slide: Chinese and Hong Kong stocks fell sharply on Wednesday after U.S. President Donald Trump signaled potential new tariffs on Chinese imports, citing fentanyl concerns. The CSI 300 and Shanghai Composite indices declined 0.9%, while Hong Kong’s Hang Seng Index dropped 1.6% from a five-week high. The yuan weakened 0.2%, despite a strong central bank fix, as Trump’s remarks ended market optimism from earlier in the week. Leading declines, China’s real estate sector dropped 4.1%, and the chip sector slid 1% following U.S. plans to invest $500 billion in artificial intelligence. Analysts expect Trump to delay further tariffs pending results of the Phase I trade deal review.9
OpenAI, Microsoft Partnership Shifts: OpenAI announced Stargate, a $500 billion AI infrastructure venture with Oracle and SoftBank, signaling reduced reliance on Microsoft. The partnership between OpenAI and Microsoft has faced tensions over exclusive cloud agreements and computing capacity, despite Microsoft’s $14 billion investment since 2019. Stargate could give OpenAI more flexibility while reducing Microsoft’s dominance over its operations. Microsoft maintains its Azure hosting for OpenAI and first refusal on additional capacity requests, preserving parts of the collaboration. OpenAI CEO Sam Altman emphasized the ongoing partnership, though Microsoft has diversified its AI investments, including backing rivals Mistral AI and Anthropic.10
Meta Plans $60B AI Investment: Meta CEO Mark Zuckerberg announced plans to invest $60–$65 billion in capital expenditures in 2025, a 50% increase over 2024, to expand AI infrastructure and capabilities. The investment includes building a massive data center, deploying 1 gigawatt of compute, and installing 1.3 million GPUs to support AI initiatives like Meta AI and Llama 4. Zuckerberg emphasized the effort’s role in driving innovation, supporting Meta’s products, and strengthening U.S. technological leadership. This announcement follows significant AI investments by Amazon, Microsoft, and the Stargate project, highlighting growing competition in AI infrastructure. Meta’s spending exceeded Wall Street expectations, which had projected $51.3 billion in 2025 capital expenditures.11
Saudi Arabia Pledges $600 Billion Investment: Saudi Crown Prince Mohammed bin Salman announced plans to invest $600 billion in the U.S. over four years, focusing on trade, defense, and economic partnerships. The pledge, confirmed during a phone call with President Donald Trump, aims to bolster mutual prosperity and regional stability. Trump highlighted the significance of U.S.-Saudi ties, referencing past agreements worth $450 billion during his 2017 visit to the kingdom. The announcement comes as Saudi Arabia faces fiscal pressures from lower oil revenues and ongoing infrastructure projects like the $500 billion NEOM development. Trump hinted the investment could increase to $1 trillion, citing strong bilateral relations.12
U.S. Politics, Policies, and Geopolitics
Judge Blocks Trump Citizenship Order: A federal judge temporarily blocked President Donald Trump’s executive order denying U.S. citizenship to children born to illegal immigrants, calling it “blatantly unconstitutional”. The 14th Amendment guarantees citizenship to those born on U.S. soil, a principle reaffirmed by key cases such as Wong Kim Ark in 1898. The order, set to take effect February 19, 2025, faces multiple lawsuits from 22 states and immigrant rights groups. Critics argue the order would harm families and impose significant costs on state systems while violating longstanding constitutional precedent. A hearing is scheduled for February 6, 2025, to determine whether to issue a longer-term injunction.13
Trump Rescinds Biden AI Order: President Donald Trump repealed former President Joe Biden’s executive order on AI safety, citing its restrictive impact on innovation. Biden’s order mandated oversight of advanced AI models and aimed to mitigate risks like deepfakes and discrimination but faced criticism from Trump allies as overregulation. Trump’s move reflects ideological differences, emphasizing fewer restrictions and closer collaboration with industry. Some Biden-era measures, such as the AI Safety Institute, remain intact, while Trump supports AI infrastructure investments like the $500 billion Stargate project. Critics argue the repeal undermines privacy, civil rights, and safety concerns tied to advanced AI systems.14
Trump Warns of Tariffs: U.S. President Donald Trump urged global businesses to manufacture in America to avoid tariffs and benefit from a proposed 15% corporate tax rate. Speaking to the World Economic Forum, Trump threatened tariffs on all countries, emphasizing Canada, Mexico, and China for trade and border issues. He criticized Canada for its trade surplus, incorrectly citing figures, and suggested it could become the 51st U.S. state to avoid duties. Trump also called for a “fair relationship” with China, addressing the U.S.-China trade deficit but offered no specifics on tariff implementation. Key economic appointments, including Treasury and Trade Representative nominees, await Senate confirmation.
Senate Confirms Rubio, Hegseth: The Senate confirmed Marco Rubio as Secretary of State with a unanimous 99-0 vote, praising his foreign policy expertise and bipartisan support. Rubio, a former rival of President Donald Trump, emphasized NATO commitments and the need for a strong U.S. stance against China during his confirmation hearing. Separately, Pete Hegseth was confirmed as Secretary of Defense in a dramatic 51-50 vote, with Vice President JD Vance breaking the tie. Hegseth faced allegations of misconduct and criticism for his views on women in combat but pledged to focus on a “warrior culture” and military modernization. These confirmations solidify President Trump’s national security team amid contentious debates over the qualifications and controversies surrounding his nominees.1516
CIA Suggests COVID Lab Origin: The CIA has assessed that the COVID-19 virus most likely originated from a laboratory in China, though it assigns “low confidence” to the conclusion due to insufficient evidence. The report, declassified by CIA Director John Ratcliffe, reflects analyses of intelligence, virus properties, and virology lab conditions rather than new information. The agency continues to find both lab-origin and natural-origin theories plausible, noting a lack of cooperation from Chinese authorities. Earlier assessments, including by the FBI and Energy Department, also supported the lab-leak theory with low confidence. The report has reignited geopolitical tensions, with U.S. lawmakers urging accountability from China.17