TheMoneyGeek Unplugged

After another bumpy week, the S&P 500 index closed up 1.5% and tagged another all-time high, headlined by inflation concerns and trade war news. The tech-heavy NASDAQ index vaulted 2.9%, while the small capitalization stocks were unchanged for the week.

The National Federation of Independent Businesses (NFIB) Small Business Optimism Index (1) was released for January and was down 2.3 points. Seven of the ten components saw declines, and the Uncertainty Index increased by 14 points to reach its third-highest recorded reading. Despite overall small business optimism, the perception of extreme uncertainty may weigh on them in the months ahead.

The January Consumer Price Index (CPI) picked up steam, coming in hotter than expected and rising to 3.0% year-over-year.

The Federal Reserve’s preferred inflation measure, Core CPI (which excludes the volatile food and energy components), also rose unexpectedly, increasing to 3.3%.

Shelter costs, which accounted for roughly 30% of the overall increase, were a major contributor to the rise in headline CPI. Other notable monthly increases include motor vehicle insurance, recreation, and medical care, which are non-cyclical and non-discretionary.

While inflation has improved since its post-pandemic highs, it has not receded meaningfully close enough to the Federal Reserve’s 2% target. It has recently re-accelerated, as evidenced by the monthly increases. January’s 0.5% month-over-month increase in headline CPI is its largest since August 2023. In addition, the one-month annualized Sticky CPI rose to 4.9% in January. This inflation report suggests the Fed’s path toward price stability remains bumpy and uncertain.

The Producer Price Index (PPI), which tracks prices paid by businesses, also increased more than expected in January following an increase in December. The report confirms ongoing inflationary pressures with notable price increases in the services and goods sectors.

Retail sales for January came in worse than expected, down 0.9% versus December and much lower than consensus estimates of down 0.1%. Sales are off to a sluggish start in 2025 after strength in late 2024. Lower auto sales dampened the result, along with nasty winter weather that hurt leisure spending.

Economic data for the coming week will be relatively light, with the minutes from the last Federal Open Market Committee being released on Wednesday afternoon and existing home sales on Friday morning.

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

(1) The National Federation of Independent Businesses (NFIB) collects small business trend data by surveying their membership base monthly. The Small Business Optimism Index series goes back to 1973 (quarterly surveys, monthly starting in 1986) and is released on the second Tuesday of each month.

Stock indexes lost ground last week as the S&P 500 index slipped 0.2%, the NASDAQ was down 0.5%, and small-capitalization stocks lost 0.4%. Another volatile week saw heavy quarterly earnings and economic data releases amid an emotional roller coaster surrounding tariffs.

The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers Index (PMI) for January finally moved back into expansion territory (above 50.0%) for the first time since October 2022. However, the Prices Paid Index jumped for the fourth consecutive month, reigniting inflation concerns.

In contrast to the Manufacturing PMI, the ISM Services PMI unexpectedly fell in January and is just 2.8 percentage points above the contraction threshold (50.0%). In addition, the ISM Services New Orders Index fell sharply.

After more than two years, this week’s ISM reports showed some optimism for the beleaguered manufacturing economy. Yet, the more significant and all-important services sector could signal a slowdown that would be a shot across the bow of this economy. These seemingly diverging developments in manufacturing and services are concerning and merit a wait-and-see approach.

The Bureau of Labor Statistics (BLS) Job Openings and Labor Turnover (JOLTS) survey disappointed forecasts and showed a decrease in job openings in December, resuming the ongoing downtrend since 2022. By contrast, the “Take this job and shove it” indicator (the ratio of quits to total worker separations) edged up, with workers just as confident in finding other positions as at the end of the last economic expansion. The US labor market remains solid, so it helps explain why Federal Reserve Chairman Jerome Powell says the Fed is in “no hurry to cut rates.”

January’s Employment Situation Summary from the BLS showed that jobs added disappointed forecasts for 170,000 new jobs, coming in at only 143,000. Additionally, annual benchmark revisions were made, resulting in 589,000 fewer jobs on a seasonally adjusted basis in 2024 than previously reported, the largest downward revision since 2009. While still stable, today’s tight labor market could be heading in the wrong direction and bears watching.

The preliminary Consumer Sentiment report for February from the University of Michigan showed a decrease from the January reading and was worse than expected. All three components of consumer sentiment fell this month, and year-ahead inflation expectations surged due to tariff concerns. If fears of rising prices come to fruition, they could pose a problem for the Federal Reserve, solidifying higher for more prolonged inflation.

The Consumer Price Index and Producer Price Index statistics for January will be released this coming week, shedding more light on the pace of inflation

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

The S&P 500 index closed down 1% in a volatile week. Monday’s markets opened on a down note due to bad news for artificial intelligence stocks, mostly recovered during the week, then dipped back down on Friday due to news on tariffs going into effect over the weekend. The NASDAQ 100 index lost 1.4%, while the small-capitalization stocks (small caps) lost 1.5%

For January, the S&P 500 index gained 2.7%, the NASDAQ 100 was up 2.2%, and the small caps bounced back 2.0%, a solidly positive start to the year.

Consumer Confidence from the Conference Board fell 5.4 points in January. The Present Situation Index fell sharply by nearly ten points while the Future Expectations Index fell 2.6 points to 83.9, hovering above the Conference Board’s “80” threshold for “recession ahead.” Overall, consumer confidence remains within the same range as it has bounced in for the last two years.

The Commerce Department reported that U.S. manufactured durable goods orders plunged by 2.2% in December (amid a nosedive in orders for transportation equipment) after tumbling by a revised 2.0% in November. Economists expected an increase of 0.8% in December, which was a big expectations miss.

December New Home Sales from the Census Bureau rose 3.6%. However, unsold inventory continues to increase and now represents a supply of 8.5 months at the current sales rate, which is historically elevated and is among some of its highest levels since the popping of the last housing bubble.

Pending Home Sales from the National Association of Realtors (NAR) tumbled 5.5% in December, with decreased transactions in all four regions of the country. The report further highlights the fragile housing market, a key area to watch. Pending sales have bounced around a small range over the last couple of years and remain near record lows. This marks a significant downturn in contract signings, evidence of prolonged buyer hesitation due to decades-high mortgage rates.

The 30-year fixed mortgage rate remains near 7%, contributing to affordability issues and keeping potential buyers from purchasing. Despite the Federal Reserve’s 1% rate cut since September, mortgage rates have risen over the same period.

December’s headline Personal Consumption Expenditure (PCE) Index was 2.6%, up from 2.4% the previous month, while Core PCE, the Fed’s preferred measure of inflation, remained stubbornly unchanged at 2.8%. While inflation has moderated since its highs following the pandemic, it remains elevated and could pose issues for the Federal Reserve.

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