“Even if you are on the right track, you’ll get runover if you just sit there.”
-Will Rogers
Here’s what you need to know this week:
- Markets begin the year on a positive note
- A soft inflation is a boon to markets, but the interest rate outlook remains murky
- Pressure mounts on the Federal Reserve
Hot Start
Stocks kicked off this year with a bang, extending 2025’s winning streak. The Dow Jones and S&P 500 both touched all-time highs on multiple days last week while the tech-heavy NASDAQ hovers less than two percent below its own high-water mark. The Russell 2000 (an index which tracks smaller US companies) also hit multiple all-time highs, which suggests that the bull market is finally broadening out from the large-cap tech sector into other parts of the economy. This is also apparent by looking at different sectors of the market; for example, Financials, Industrials and Materials have all broken out and are hitting new highs as well:
Last Friday we received the nonfarm payrolls (NFP) report for the month of December. The report showed the US economy adding 50,000 jobs which was slightly lower than Wall Street estimates[1], but the report also showed the unemployment rate declining from 4.5% to 4.4%:
Stocks responded positively to the report. The softening hiring numbers may give the Federal Reserve more reason to cut interest rates in the coming months (more on that below), while the unemployment rate is still near historic lows, assuaging concerns of an economic slowdown.
Lukewarm
Yesterday we received the Consumer Price Index (CPI) report for the month of December. This report measures US inflation and showed monthly inflation at 0.3% and annualized inflation at 2.7%:
As you can see, inflation has greatly receded from the highs of 2022 but has remained stubbornly above the Federal Reserve’s long-term target of 2% annualized. This has put the Fed in an awkward position of whether to cut rates further and risk reigniting inflation, or leave rates steady and risk a deteriorating labor market.
Fed Up?
As the Fed deliberates over interest rate policy, President Trump has emerged as an outspoken critic. Trump has repeatedly criticized Fed Chairman Jerome Powell and even threatened to fire him (despite debates over whether he has the authority to do so). The tensions reached a new level over the weekend as the Department of Justice brought a criminal investigation into Powell regarding renovations at the Federal Reserve’s headquarters. President Trump claims to have no knowledge of the probe but has also voiced support for it.
Powell testified to Congress yesterday regarding the allegations that he has wasted taxpayer dollars on luxury renovations. Powell denied the accusations and countered that Trump instructed the DOJ to start this investigation as part of his campaign to pressure Powell and the Fed to lower interest rates. No official charges have been filed as of writing.
Regardless of who’s right, Powell’s tenure at the Fed is nearly at an end. His current term ends in May of this year and the President has been clear that he will not be returning. Trump is currently interviewing potential replacements for Powell and is expected to announce a nominee within the next few weeks. Many analysts on Wall Street expect Trump to nominate a loyalist who will drive interest rates lower despite the risk of increasing inflation, although the Fed Chair is only one member on a twelve-person committee that determines interest rate policy. The next Federal Open Market Committee (FOMC) is two weeks from today and the bond market is assigning a 97.6% chance of rates staying the same[2]; if so, tensions between the Fed and the White House may continue to rise.
What Else
- President Trump held a meeting with oil executives to discuss investing in Venezuelan oil operations; the energy executives seem skeptical for the moment
- Israel has continued airstrikes on Gaza despite the ceasefire, drawing condemnation from the US and multiple other countries
- Russia fired a hypersonic missile into Ukraine in its latest escalation of the nearly four year war, raising concerns that such a missile could potentially reach other European countries undeterred
- Iranian protests continue to clash with government forces over economic conditions and government repression
- Miami plays Indiana in the College Football championship next Monday at 6:30 PM CTon ESPN
- Oklahoma City announced a trial program making the downtown streetcars free for the next six months to study whether it increases foot traffic to downtown businesses
What We’re Reading
With all the upheaval in Venezuela, many people are talking about Venezuela’s vast oil reserves and what a US takeover might mean for the oil markets. What most people don’t know, however, is that all oil is not made equal. Crude oil is graded in multiple ways: light vs heavy, sweet vs sour. Much of the oil produced in the southern US is light sweet crude, which is easy to refine; contrast to Venezuelan crude, which is largely a more heavy and sour variety. Click below to learn more about the differences in oil grades and why Venezuelan oil may prove to be a challenge to refiners:
What’s Happening Downtown
The Devon Ice Rink is still open for a few more weeks! The rink is open seven days a week and closes for the season on February first. Admission is $15 per person or $10 if you bring your own skates. Click below to learn more:
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Written by: Kane Ogle, CFP®
Steve Beck, Kane Ogle, CFP®, Amber Eduvigen, CFP®, Cale Olbert, CFP®, Brett Valentine, CFP®, Brandon Ingerson, Bill Daniel, Sam Postich, Jenni Hess
Sources: [1] CNN [2] CME FedWatch