Economy
If the Fed was looking for validation that last week’s rate cut was warranted, it may have found it in the latest inflation report. Prices rose less than expected in November according to the most recent consumer price index (CPI) data. Many components of CPI, including food inflation and goods inflation, have more or less normalized. Shelter inflation, which makes up about 1/3 of the index, saw a decline which helped to bring the overall numbers down. There exist a few caveats with the report: it was delayed by a week, and because of the government shutdown, we didn't get to see the October numbers, which means we don't have a true month-over-month change.
The Fed's top priority has shifted over the last year or so from bringing down inflation to maintaining a strong labor market. The last reading we got showed the unemployment rate increase from 4.4% to 4.6%, and the monthly change in total payrolls has been losing momentum since May. The data stream will get back on track in January when we will get readings on both the health of the labor market and the pace of inflation for December. For now, the markets are expecting the Fed to leave rates unchanged until April or June.
Markets
The S&P 500 was barely able to squeak out a positive weekly return, rising 0.1% after stocks rallied on Friday. The market had a positive reaction to the better-than-expected inflation report, but the AI theme continued to grab headlines and move the market. In the last few months there have been louder calls for concern about the cost to build out the infrastructure needed to support artificial intelligence, and whether or not there could be a way for companies to see a decent return on investment. Although the market is flat since Thanksgiving, we're still within 1% of record highs and up more than 16% on the year. There are only a handful of trading days left in 2025. One of the biggest stories in the stock market this year has been the outperformance of the rest of the world relative to the US.
What We're Reading
Have a great weekend.
Dogwood Wealth Management