“Time is your friend, impulse is your enemy.”
-Jack Bogle
Here’s what you need to know this week:
- Stocks move higher on light inflation report
- Markets prepare for President Trump’s second term
Cooling Core
Stocks posted their best week in two months and are now positive for the year on the heels of a cooler-than-expected inflation report[1]. December’s Consumer Price Index (CPI) report showed headline inflation in line with expectations at 2.9%, but core inflation (inflation less food and energy) came in at 3.2%, slightly less than the 3.3% that analysts expected:
This light inflation print provided relief after the hot December jobs report but has done little to change expectations of an interest rate cut at next week’s Federal Open Market Committee (FOMC) meeting. As of writing, the bond market is only assigning a 0.5% chance of a rate cut next Wednesday[2].
Trump 2.0
President Trump was officially sworn into office on Monday afternoon and immediately got to work signing a series of executive orders ranging from immigration to health care to social media policy. Trump’s first term was largely good for the investment markets due to business- and consumer-friendly policies despite also being unpredictable at times. Investors and analysts are currently positioning for two themes that are expected to be priorities for the start of his administration.
The first is tariffs, or taxes on foreign imports coming into the country. President Trump made the promise/threat of tariffs a signature plank of his campaign and is already weighing the implementation of them in his first week. The first major targets are Mexico and Canada: Trump declared that he will sign a bill imposing a 25% tariff on all goods from our two neighboring countries starting on February 1st[3]. Analyst consensus is that tariffs of this size would likely contribute to inflation and analysts are currently torn on whether these tariffs will materialize or if they are simply a negotiating tactic to gain more favorable trade terms with the two nations.
The second is energy. On inauguration day Trump signed an executive order declaring a national energy emergency which overturned many Biden-era restrictions on oil drilling and production[4]. While this is expected to be a boon to the energy industry, oil producers must contend with global market conditions. Trump’s first term was famously energy-friendly but the energy sector suffered the worst returns of any US sector during his first term, posting a negative return even before the COVID shutdowns. Energy investors are hopeful that Trump will negotiate favorable trade terms with OPEC, a consortium of oil-producing nations around the world and especially in the Middle East. There will likely be many trade and regulatory changes in the coming months, just remember that the most important part of investing is patience; like the quote says at the top, impulse is your enemy.
What Else
- President Trump signed a flurry of deals on his first day back in office, including a 75-day stay on the impending TikTok ban
- Israel and Hamas have agreed to a six-week ceasefire
- The death toll from the California wildfires has reached 27 as the fires continue to burn
- Legendary filmmaker David Lynch passed away at age 78
- Ohio State defeated Notre Dame 34-23 to win the College Football National Championship
- The NFC and AFC championships take place this Sunday
What We’re Reading
NASA’s Perseverance Rover has spent years collecting rock and soil samples from Mars’ surface, but has no way to bring these samples back to Earth. NASA has two potential solutions for the first-ever return trip from the red planet and plans to attempt both simultaneously. Click below to learn more:
What’s Happening Downtown
The Myriad Gardens is hosting a new art show called Fantasies, Forms & Florals: A Look Into Wonder and Abstraction. The gallery will be displayed in the visitor lobby of the Crystal Bridge Conservatory from now until February 26th. 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, Brandon Ingerson, Jenni Hess
Sources: [1] Yahoo! Finance [2] CME Group [3] CNN [4] Bloomberg