The futures market is implying a positive open to today’s stock trading. This morning, the U.S. Bureau of Economic Analysis (BEA) released important inflation data for the month of December. The headline personal consumption expenditures (PCE) price index recorded a 0.3% increase, matching economists’ consensus estimate and faster than the prior-month advance of 0.1%. On a year-over-year basis, that measure showed 2.6% growth, meeting expectations and up from 2.4% previously. Core PCE, which strips out volatile food and energy prices, progressed at a rate of 0.2% last month, in line with what was anticipated and double the pace realized in November. Year on year, the core rate of inflation was 2.8%, even with both the outlook and the last recorded gain.
Additionally, prior to the opening bell on Wall Street, the BEA released its latest data on domestic personal income and personal spending. In December, income improved 0.4%, one-tenth of a point better than the November rate. Spending was up a strong 0.7%, above the earlier posted pace of 0.6% (revised up from 0.4%). On balance, inflation is proving resilient, despite the Federal Reserve’s efforts to contain it. Gross domestic product slackened in the final quarter of 2024, but the economy remains fairly healthy and corporate earnings prospects appear favorable. Employment levels are solid, as was reflected in recent jobless claims readings.
The Fed voted to hold short-term interest rates steady at 4.25%-4.50% at its meeting this week. That was largely expected on Wall Street. A number of central bank officials still believe that current monetary policy is overly restrictive, and expect one or two one-quarter-point cuts to the federal funds rate over the course of 2025. In view of President Trump’s plans to impose import tariffs and deport illegal immigrants, some economists are concerned that inflation could reignite, pressuring the Fed to stop cutting, or possibly raise, rates. We are modelling for modest reductions.
This week, the major U.S. stock market indexes have struggled to reach positive territory. The blue-chip Dow Jones Industrial Average looks to secure a gain of better than 1.0%, while the broader Standard & Poor’s 500 (S&P 500) may decline by a fraction of a point and the tech-heavy NASDAQ looks to fall more than 1.0%.
At the start of the week, the NASDAQ composite and S&P 500 index were hit hard by share-price losses suffered by NVIDIA (NVDA), Oracle (ORCL), and other leading tech issues. The emergence of a competing artificial intelligence system in China was the culprit. We note that several other alternative AI offerings are rolling out from tech players in the People’s Republic, as well. Also causing some volatility in the markets were executive orders made by President Trump that produced some confusion about the operations of several federal agencies. His reiteration of placing tariffs on Canada and Mexico was not helpful either. Stocks have firmed a bit since Monday, however, thanks to opportunistic buying and generally positive tech earnings reports.
Stocks could prove to be more volatile in 2025 compared with the back-to-back winning years 2023 and 2024. Valuations are running high, and any operating missteps, though we don’t expect anything major across the economy, might measurably pressure equity prices. We advise diversifying core portfolio holdings with issues of stable large-cap stocks in various industry leaders. A smattering of good-quality mid- and small-caps may provide some upside support. – David M. Reimer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
CLICK HERE for more information on our services or call 1-800-VALUELINE (1-800-825-8354). Our account managers are available Monday through Friday, 8:00 AM to 6:00 PM Eastern Time.
