Is America hitting a bump in the road, or driving into a ditch?
By When we last looked at the markets in November, we had just gotten election results and we were putting together our expectations for 2025. My thought was that 2025 would be a solid year for the financial markets, though with a challenging puzzle to put together.
My, how things have changed in the last six weeks. Our own Federal Reserve shocked the market for the second time in a year, saying it was not expecting to cut rates as much as the market had anticipated in 2025 and that it would be data-dependent in making its decisions based on factors like jobs and inflation reports, to name two.
Bond markets responded by recalibrating what rates would look like in 2025, and equity markets were rocked through the end of last year and the start of this one. They continue to be pressured as the jobs reports are showing low unemployment. While a good thing for America’s economic success, it’s not so great if you were looking for the Fed to keep cutting rates anytime soon. All of this comes during a period when inflation has threatened to rear its ugly head again, uncertainty abounds with the presidential transition, and a troubling run of natural disasters affecting both coasts.
But just this week, we’ve finally seen some good news on the inflation front. The producer price index rose just 0.2% in December and the core consumer price index came in at 3.2%, which were both a bit lower than expected. These are good signs, although possibly not enough to encourage the Fed to take up its previous stance on additional rate cuts in 2025. But this data does give some credence to the theory that the recent uptick in inflation was more a bump in the road rather than a new trend to worry about.
Listen, we said it would be challenging as the entire world tried to interpret what a Trump presidency and a Musk Department of Government Efficiency would mean. It still will be. Add in that we’ve yet to see the impact of hurricanes, floods, and fires on the cost of goods. Think inflationary. It’s reasonable to think that there will be historic supply chain pressure as tens of thousands of families around the country rebuild their homes and replace lost possessions.
Our country faces a lot of problems. I’m not talking about our incoming president, although that could be one. I’m not talking about inflation, although that could be one. I’m not talking about natural disasters, although that could be one. Just in the last five years, America has survived a pandemic, a banking crisis, a litany of worker strikes, and a blocked canal. We are also in a battle with the rest of the world over artificial intelligence. We have a national debt larger than ever, and we have to figure out how to finance that. The country hasn’t passed a balanced budget since who knows when.
But read that again — America has survived. Ever since America decided to break off and become a nation, the country has had challenges. But our citizens and the corporations made up of those citizens have continued to innovate and advance to make America the place that immigrants flock to.
My hope is, that as we go into earnings season for some of our biggest banks and corporations, our worries will be assuaged by some of our largest companies. Hopefully, we hear guidance from corporate America that supports the idea that, despite the challenges, they can remain strong and continue to grow and innovate. I think much of the corporate commentary we’ll hear highlighted during this earnings season will be pinpointed on the potential impact of “tariffs,” “inflation,” and “immigration.”
I’m looking forward to hearing from the companies we follow on how they’re preparing themselves to make progress in 2025. While the markets have drifted down over the last few weeks, I do believe that we’re closer to the first good buying opportunity of the year. I know a lot of you are nervous about the state of the world, but I would encourage you to take advantage of what I would call “overwhelming national anxiety” and make those contributions to your retirement accounts and your kids’ education funds, and make sure that the money you have sitting in a bank account is earning a fair return. If you have any questions on any of this, reach out to me or anyone else on our team, and we’ll be glad to work with you while this opportunity exists.
Even if it’s not an investment question, if you’re just wondering how this will affect your upcoming retirement, we can have that conversation, as well.
Happy New Year to all of you — I hope to hear from you soon.
The information discussed is educational in nature and is not and should not be construed to be investment advice, nor a recommendation to purchase or sell any investment product or security. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful. Past performance is no guarantee of future results.
Article by David Smyth, Senior Partner and Wealth Advisor at Family Financial Partners — a financial services firm in Lexington, Kentucky.