Economy
Fed Chair Jerome Powell had a date with Congress this week where he defended the Fed's most recent decision to not cut interest rates further. "The truth is, the economy is strong, the labor market is solid, and we have the luxury of being able to wait and let our restrictive policy work." He also stated that they still have more work to do in bringing inflation down. That became more evident in looking through this week's inflation report. Inflation in January ticked up to 3% as prices rose pretty much across the board. Egg prices rose 15% last month driving grocery prices higher due to a bird flu outbreak. Prices on fuel and vehicles also rose, and when it costs more to transport goods, you'll see a spill-over effect in other areas. While the Fed may not be able to help cure our chickens or increase oil production, the "all items less food and energy index" (core inflation) also rose in January. The result of Powell's testimony and the January inflation report looks like a decreased chance of the next rate cut in June. Last week the market had priced in 50/50 odds of a June cut, and today it's only about a 40% chance.
Markets
This week felt much more "normal" compared to the last two as we didn't have a major breaking story over the weekend to interrupt markets. Wednesday saw the stock market open lower due to the inflation report, but the market recovered the loss and closed the week higher by 1.47%. We're off to a great start to 2025 with the S&P up 4% and at all-time highs. Ryan Detrick of the Carson Group reminds us this week that the back half of February has historically been a choppy ride for the markets, which can be attributed to several factors (seasonality, sentiment, etc.).
We're about 80% of the way through earnings season for the fourth quarter, and companies continue to beat their expectations at a faster rate than the 10-year historical average, according to FactSet. We'll have some major retailers including WalMart and Wayfair reporting this coming week, and that's coming off of a retail sales report this week that was weaker than expected. John Butters reported this week that companies are citing tariffs on conference calls at the highest clip since 2019, and we'll undoubtedly hear more in the coming days.
What We're Reading
- How AI Will Divide the Best from the Rest - The Economist
- Altman vs. Musk - WSJ
Have a great weekend.
Dogwood Wealth Management