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

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