“Investors must keep in mind that there’s a difference between a good company and a good stock. After all, you can buy a good car but pay too much for it.”
-Loren Fox
Here’s what you need to know this week:
- Stocks brush all-time highs on encouraging inflation reports
- Analysts deliberate over proposed tariffs
Inflation Optimism
Stocks gained ground over the last week and are on the cusp of reaching new all-time highs. The Dow Jones and NASDAQ are currently less than 1% below their respective all-time highs and the S&P 500 briefly touched a new high before retreating slightly.
These gains were mostly driven by an inflation report that provides an encouraging outlook for spring. The Consumer Price Index (CPI) report for January (which measures inflation on consumer goods) rose by 0.5% for the month and 3% over the last year, both of which were slightly higher than the 0.3% and 2.9% that analysts expected. A “hot” inflation report like this would usually pull markets down, but this report contained more nuance. The core CPI measurement (CPI less food and energy prices) rose by 3.3% over the past year, marking a slight decline from December[1].
Core CPI can be a useful measurement on true inflation because it strips out some of the more volatile categories. For example, the price of eggs rose 15.3% in January and 53% over the past year due to the proliferation of bird flu. The Federal Reserve will want to see more progress towards their target of 2% annualized inflation before cutting interest rates again, but the market clearly sees this January report as an anomalous blip. Analysts expect the next Personal Consumption Expenditures (PCE) report to show more moderation in inflation. The January PCE report comes next Friday, February 28th.
Tempered Tariffs
Some analysts also believe this slightly hot report may alleviate the threat of tariffs. Conventional wisdom says that blanket tariffs would harm large multinational firm’s profits and would also contribute to inflation. Bank of America analyst Michael Hartnett told Bloomberg that he believes inflation may impact President Trump’s thinking on tariffs and may lead him to take a more targeted approach[2].
This theory already appears to hold water: President Trump announced on Monday that he and his team will look into implementing “reciprocal tariffs” meaning they will only place tariffs on countries that currently have tariffs in effect on us[3]. This strategy would have a much smaller impact on the stock market while also targeting certain countries and industries with much more accuracy.
Stocks reaching all-time highs indicates most investors believe Trump will take this more targeted approach. Markets have consistently treated tariffs as more of a negotiating tactic and so far this has proved correct: Trump paused his threat of blanket tariffs on Mexico and Canada in exchange for enhanced border security concessions. Tariffs will continue to be a main market driver in the coming weeks, but for now markets look optimistic.
What Else
- President Trump met with Indian President Narendra Modi to begin trade negotiations
- The price of gold reached a new all-time high of $2,950 per ounce
- Israel and Hamas exchanged hostages as part of their ceasefire agreement
- Robert F. Kennedy Jr. was officially sworn in as the next Secretary of Health and Human Services
- The H5N5 bird flu has caused chicken farms in multiple states to close, driving the price of chicken meat and eggs higher
What We’re Reading
Artificial intelligence tools have exploded in popularity over the past two years many still question how trustworthy they are. One new frontier is outsourcing note-taking in meetings to AI tools. They save time on summarizing meetings, but are they accurate? Click below to read the debate:
What’s Happening Downtown
Ten Buck Lunch Week returns to Midtown next Monday through Friday, February 24th – 28th. This event features great deals from more than twenty local restaurants, click below to read the full list:
To read more from our blog, click here
Written by: Kane Ogle, CFP®
Steve Beck, Kane Ogle, CFP®, Amber Eduvigen, CFP®, Cale Olbert, CFP®, Brett Valentine, Brandon Ingerson, Jenni Hess