TheMoneyGeek Unplugged

The shortened holiday trading week saw markets react positively to the presidential inauguration and a slew of policy decisions, lifting the S&P 500 Index by 1.7% to a new all-time closing high. The NASDAQ index closed up almost 1.6%, and the small-capitalization Russell 2000 index followed suit and closed up almost 1.4%.

While market technical data failed to make significant positive headway going into this coming week’s Federal Open Market Committee meeting, institutional selling (distribution) eased for the first time in several weeks.

Economic data was somewhat light this week.

Existing Home Sales from the National Association of Realtors for December rose 2.2% month over month and 9.3% year over year. Despite these seeming improvements, total sales for 2024 settled at the lowest level in almost 30 years. Existing Home Sales have bounced around a historically low range since late 2022 and continue to expose significant fissures in the housing market. Housing sector stocks remained buoyant for the week.

The Consumer Sentiment final reading for January surprised to the downside, dropping 4% from December’s reading. All components saw declines except for consumers’ assessments of personal finances. This broad-based pullback reflects concerns surrounding the current and future economy and inflation. Year-ahead inflation expectations soared to 3.3% this month, which does not bode well for the Fed’s battle to their 2% target.

The Conference Board’s Leading Economic Index (LEI) fell back in December. Despite strong contributions from financial inputs, the LEI failed to gain positive traction, as half of the ten components, including new orders and consumer expectations, were negative for the month. Thus, the leading economic data indicates that the path forward remains somewhat uncertain.

Sam H. Fawaz is the President of YDream Financial Services, Inc., a fee-only investment advisory and financial planning firm serving the entire United States. If you would like to review your current investment portfolio or discuss any other tax or financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fiduciary financial planning firm that always puts your interests first, with no products to sell. If you are not a client, an initial consultation is complimentary, and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client and their financial plan and investment objectives are different.

Source: InvesTech Research

Compared to the prior week, all seemed to be forgiven in the markets, as the S&P 500 index leaped 2.9% thanks to better-than-feared inflation data. The NASDAQ also sprinted up 2.9%, while the Small-Capitalization stocks led the way, vaulting almost 4.0%. January continues to live up to its reputation for increasing chop and volatility, while some signs of institutional selling continued.

The Consumer Price Index (CPI) for December came in at 2.9%, up from 2.7% in November. Core CPI (which excludes the more volatile categories of food and energy) was down from 3.3% to 3.2%, signaling that the rate of inflation is stubbornly stable and consumers are still feeling the pinch. Wall Street cheered this better than expected news as it continues to expect (hope?) at least two rate cuts in 2025.

The Producer Price Index (PPI), which tracks prices paid by businesses, was also up 3.3% year over year in December but lower than forecast. The vast majority of producer price increases resulted from energy costs.

The National Federation of Independent Businesses (NFIB) released its Small Business Optimism Index for December, which increased to its highest reading since July 2019. Small business owners are feeling more hopeful about the future, anticipating that potential favorable regulatory changes from the incoming administration will help Main Street.

Builder Confidence from the National Association of Home Builders (NAHB) edged up in December, as did Traffic of Prospective Buyers. However, sales expectations in the next six months fell six points. Price cuts and sales incentives continue to be offered as the cost of construction and high mortgage rates rise.

Housing Starts were up a surprising 15.8% in December, much of this due to an almost 60% increase in multi-family unit starts. This is an extremely volatile monthly number, and it’s worth noting that Housing Starts were still down 4.4% year-over-year. Additionally, Building Permits, which are generally more forward-looking and feed into future housing starts, were down 0.7% from November and down 3.1% compared to 2023.

YDream Financial Services is an investment advisory and financial planning firm serving the entire United States. If you would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first. If you are not a client, an initial consultation is complimentary, and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client and your financial plan and investment objectives are different.

Source: InvesTech Research

The S&P 500 index closed almost two percent lower after a fairly volatile, shortened trading week as investors grapple with uncertainty regarding future monetary policy and economic conditions. The NASDAQ index shed 2.2% while the small capitalization stocks slid 3.4% on the week, giving up their prior week‘s strength.

The post-election market “bump” we saw has all but been dissipated as institutional distribution (selling) continued this week, raising concerns of a more extended market correction.

Friday’s Employment Situation Summary (AKA the monthly jobs report) from the Bureau of Labor Statistics (BLS) for December surprised forecasts, coming in with 256K new jobs while the unemployment rate ticked down to 4.1%. Employment increases were seen in health care, retail, government, and social assistance. While a positive development, all but retail are non-cyclical sectors that are less sensitive to economic fluctuations. Stocks sold off and interest rates ticked up in response as the report reduces the possibility of additional rate cuts in 2025.

Job Openings from the BLS for November reported an increase to its highest level since May. Despite this, both the hiring and quits rate ticked down, suggesting that employers are hiring cautiously and that workers may feel less confident about finding new job opportunities.

The Institute for Supply Management’s (ISM) Services Sector rose in December, signaling continued expansion. However, a dramatic increase in the Prices Paid subcomponent is concerning, indicating that inflation pressures are becoming more pervasive. Despite improvements in most components, bond yields jumped higher and stocks sold off, proving that good economic news can sometimes elicit a bad market reaction.

A deeper look beneath the surface reveals why the situation may not be as encouraging as it seems. Many survey respondents cited end-of-year seasonal factors that boosted demand (perhaps to front-run potential tariffs.) Indeed, the main focus was tied to concerns about potential tariffs. This implies that the services sector could be weaker in the coming months if new policies are introduced.

Since September, the Federal Reserve has implemented several short-term interest rate cuts in an attempt to support economic growth. However, despite these efforts, longer-term bond yields have actually continued to climb (pressuring bond prices.) This suggests that some investors may be rejecting the idea that inflation has been tamed, which would likely limit the Fed’s ability to reduce rates further in the near term.

Friday’s preliminary January reading of Consumer Sentiment from the University of Michigan saw a fractional decrease from last month. However, the Current Conditions component improved while the Consumer Expectations component fell, reflecting concerns over future economic growth. Inflation uncertainty has climbed considerably over the past twelve months and year-ahead expectations soared in January, its highest reading since May 2024.

Sam H. Fawaz is the President of YDream Financial Services, Inc., a fee-only investment advisory and financial planning firm serving the entire United States. If you would like to review your current investment portfolio or discuss any other tax or financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first with no products to sell. If you are not a client, an initial consultation is complimentary, and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client and their financial plan and investment objectives are different.

Source: InvesTech Research