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Inflation fears resurface:
Major Index Performances (as of Friday 2:pm):
- S&P 500: The benchmark index is even.
- Dow Jones Industrial Average: The Dow Increased (-.3%)
- Nasdaq Composite: The index is down (- .35%)
- Gold: The Precious metal is up 1.17%, hitting an all time high
Friday the University of Michigan released its expected inflation report, anticipating inflation to rise 4.3% this year, much higher than the previous number of 3.3%. Despite better-than-expected job reports, and unemployment dropping to 4%, the fear of inflation is having a negative impact on the market. Consumers are worried about inflation with prices elevated, but views differ sharply between Democrats and Republicans. Republicans broadly expect inflation to slow dramatically ahead, while Democrats expect looming tariffs to push prices higher.
Trade War Continues: President Donald Trump said he plans to unveil reciprocal tariffs next week in a major escalation of his trade war with US economic partners. Trump made the announcement during a meeting with visiting Japanese Prime Minister Shigeru Ishiba on Friday and said the action would affect “everyone,” without specifying exactly what measures he plans to take. “I’ll be announcing that next week, on reciprocal trade, so that we’re treated evenly with other countries. We don’t want any more or any less,” Trump told reporters in the Oval Office, adding that he planned to hold a press conference on the matter. Trump also said that tariffs targeting automobiles were under consideration. “That’s always on the table, it’s a very big deal,” he said. “We have to equalize it.” The push for reciprocal tariffs has long been a pursuit of the president and some of his top advisers.
Bond Yield on the Rise: The strong jobs report and low unemployment rate give investors reason to believe the Federal Reserve may not lower interest rates this year. Shortly after the jobs market report the 10-year treasury rose as much as .6%, to hit 4.5%. “The Fed will not see any reason from the jobs report to change their near-term plans,” Bill Adams, chief economist at Comerica Bank, said.
Wages, which have big implications for inflation, climbed 4.1% year-over-year, above the 3.8% growth economists were expecting. The unemployment rate also eased to 4%, the lowest level since May of last year. Meanwhile, job gains for the months of November and December were revised up by a combined 100,000. Investors were upbeat about labor-market strength but cautious about what it means for interest rates in 2025.
Super Bowl Effect: I have commented on several “non-market” factors, such as the Santa Clause rally and the January effect. This week, It’s the Super Bowl Effect. There is a “theory” which says a team from the old National Football League (The Eagles) wins a Super Bowl, the S&P 500 may rise, and when a team from the old American Football League (The Chiefs) prevails, stock prices may fall. It’s a just a “theory”, but its track record is worth noting; this phenomenon happened 41 of the 58 Super Bowls. If you are someone that doesn’t care who wins, you should pull for an Eagle upset. At least according to theory.
Enjoy your Super Bowl weekend.
Your OmniStar Investment Team.
