Economy
The latest inflation data suggests we may be moving in the right direction. While inflation (the consumer price index) increased last month from 2.75% to 2.89%, price increases for items excluding food and energy (core CPI) came in lower than expected. Much of the increase in CPI came from higher gas prices last month. On its face it seems silly to exclude food and energy prices because we spend a good portion of our monthly income on such expenses. However, it's important to track core CPI because the Fed arguably has little impact with its interest rate policy over prices of food and energy. For example, egg prices rose by 3.2% last month, which may have more to do with the H5N1 bird flu spreading than it does the where the Fed sets its overnight interest rate.
Expectations for lower rates by the end of the year are now slightly higher in light of the latest inflation data. No one wants to hear that more than people who are taking out mortgages today. The rate on a 30 year mortgage eclipsed 7% for the first time since May, and next week when we get the December home sales report, it's likely to show 2024 as the worst year for home sales since 1995.
Markets
It was a great week in the market as the S&P 500 rose by 2.91%. The rally comes from a combination of good economic data and strong corporate earnings reports, primarily from the financial sector. Last week, CNN's Fear and Greed Index was bordering on Extreme Fear. This index is comprised of seven indicators, including Stock Price Strength and Market Volatility. Even after this past week's strong market performance, the index is in Fear territory. It's an odd juxtaposition because we're only 1.5% from making a new all-time high for the S&P 500. Despite the sentiment and whatever is driving it, stocks are off to a good start for 2025, and the market will be busy parsing corporate reports over the next several weeks as we get deeper into earnings season.
What We're Reading
- Your Brain Is Lying To You - Vox
- The Notre Dame Star Trying to Win Two National Championships in Two Different Sports - WSJ
Have a great weekend.
Dogwood Wealth Management