TheMoneyGeek Unplugged

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