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.
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