The recent spike in volatility continued this past week in the financial markets, driven primarily by shifting trade policies, the decision by the Open Market Committee of the Federal Reserve (FOMC)on interest rates and the nomination of Kevin Warsh to succeed Jerome Powell as the new Chair of the Fed. As noted recently within this report, “given the magnitude of the run-up from the start of the bull market during October 2022 and then again when President Trump pivoted on tariffs the morning of April 9, we could be in for choppy trading for quite some time. We’re fine with that as that may very well provide energy for another leg higher.”
· President Trump nominates Shaker High School Grad Kevin Warch to succeed Jerome Powell as the Chair of the Federal Reserve. Most view, as do we, Warsh as a solid pick by the President, one who will maintain the independence of this body that determines monetary policy for the United States. However, Warsh does support cutting interest rates, arguing that productivity gains stemming from innovation in technology and Artificial Intelligence (AI) should keep inflation in check.
· Fed Holds Interest Rates Steady. The Open Market Committee of the Federal Reserve (FOMC) concluded its two-day meeting this past Wednesday and announced that it was holding interest rates, as represented by the Federal Funds Rate, steady at 3.50% to 3.75%. Within the policy statement, the committee upgraded its view of the economy, describing growth as expanding at a “solid pace” and noting that the unemployment rate has shown “signs of stabilization.” The committee also noted that inflation remains “somewhat elevated” relative to its 2% target. Chair Powell stated that while tariffs have pushed up some goods prices, these effects are expected to be one-time and should fade by mid-2026. Finally, the FOMC removed its previous reference to “downside risks to employment,” suggesting officials now see the dual goals of full employment and low inflation as being more in balance.
· Gold and silver prices plunge. After a massive run-up in both metals, gold and silver prices plunged Friday, with gold dropping 11.4% and silver crashing 31.4%. Silver suffered its worst day since 1980. The catalyst for the selloff was certainly the nomination of Warsh as the new Fed Chair. Warsh, if appointed, should help stabilize the dollar and maintain its position as the world’s reserve currency. However, other factors also contributed to the sell off, including the strength of the recent rally and forced selling as the liquidation picked up steam.
· A recent released report from the Bureau of Labor Statistics (BLS) Average Expenditures by Age in 2024 peak at $100,327 between the ages of 45 and 54 and sink all the way down to $55,835 for those ages 75 and older. Some of the categories included are travel, apparel, services, entertainment, transportation, food, education, housing, charity and health care.
It’s The Economy…”
· Prices at the wholesale level as measured by the Producer Price Index rose 0.5% during December after edging 0.2% higher in November. Over the past year the PPI has risen 3.0%, down from 3.3% in July and from a peak rate of 11.7% during March 2023. Energy prices slipped 1.4% during December (3.0% y/y) after rising 3.7% in November. Finished food prices fell 0.3% during December (1.0% y/y) after being unchanged in November. Ex- food and energy, the core PPI rose 0.4% during December (2.9% y/y), after rising 0.2% in November. (Source, U.S. Bureau of Labor Statistics)
· The U.S. Trade Deficit nearly doubled to $56.8 billion during November from $29.2 billion in October. The value of Exports fell 3.60% to $292.1 billion from $303.0 billion while the value of Imports rose 5.06% to $348.9 billion during November from $332.1 one-month prior. (Source, Bureau of Economic Analysis)
· Nonfarm Productivity rose by an unrevised 4.9% (3.3% y/y) (SAAR) during the third quarter, up from 4.1% during the second. Hourly Compensation rose by an unrevised 2.9% during Q3 (3.2% y/y), up from 1.1% during Q2. Adjusted for inflation, the Real Hourly Compensation fell by 0.2% (0.5% y/y) compared to 1.2% during the prior quarter. As a result, Unit Labor Costs (defined as output per hour of work and can be determined by dividing total labor costs by output) fell by 1.9% (1.2% y/y) during Q3 which follows a drop of 2.9% during Q2. (Source, U.S. Bureau of Labor Statistics)
· The Conference Board’s Consumer Confidence Index fell to 84.5 (-18.8% y/y) during January from 94.2 in December. This figure marked the lowest since May 2014. The present situation index slumped to 113.7 in January from 123.6 (-15.3% y/y) while the expectations component fell by 9.5 points to 65.1 (-22.4% y/y) from 74.6 during December. Those surveyed saying that jobs are “hard to get” rose to 20.8% of respondents during January from 19.1% in December while those claiming that jobs were “plentiful” fell to 23.9% of respondents from 27.5% during those same months.
· Orders for Durable Goods (those expected to last at least three years) rebounded 5.3% during November, after sliding 2.1% during October. Smoothing out the m/m volatility, Orders for Durable Goods have risen 12.3% y/y. Transportation Equipment Orders rose 14.7% (29.0% y/y), after falling 6.3% the prior month. Excluding transportation, new orders rose 0.5% during November (4.4% y/y), after rising 0.1% during October. (Source, U.S. Census Bureau)
Economic Reports scheduled to be released this week, include the following – on Tuesday December Job Openings and Labor Turnover Survey (JOLTS) Report; on Thursday, Initial Claims for Unemployment Benefits; and, on Friday, January Non-Farm Payroll Report; January Unemployment Rate; December Consumer Credit; and the Preliminary Consumer Sentiment Survey from the University of Michigan.
Several potentially market moving companies are scheduled to report earnings, to include Palantir Technologies (PLTR), Disney (DIS), Amgen (AMGN), PepsiCo (PEP), Merck (MRK), GE Health Care (GEHC), Emerson Electric (EMR) Advanced Micro Devices (AMD), AbbVie (ABBV), Alphabet (GOOG), Novo Nordisk (NVO), Novartis (NVS), Old Dominion Freight (ODFL), Bristol Myers (BMY), Banco Santander (SAN), Eli Lilly (LLY), Linde (LIN), Amazon (AMZN), Toyota Motor (TM), Philip Morris (PM) and Biogen (BIIB).