Fed Chair Powell can certainly move the markets, at least in the short run.
Think back to 2018, when Powell took over for Janet Yellen. He raised rates a couple of times and then in October 2018, suggested rate increases have a long way to go. What followed, a double-digit stock market correction immediately thereafter. Powell, in January 2019 then suggested rate increases are not going to happen. Did the economy change that quickly?

In 2021 with inflation running rampant, Powell suggested inflation is transitory and he would let inflation run hotter for longer. He kept his word letting it run hotter, having to play catchup in 2022 decimating both stocks and bonds.
It was only a handful of months ago, Powell lowered rates by .50%, after we witnessed a weak manufacturing and jobs number. He appeared concerned the economy was slowing quicker than anticipated.
Most of our economic data has been positive, with low unemployment and a healthy consumer still willing to spend. GDP has surprised to the upside. Other than the housing market because of limited supply, it’s hard to say the economy has slowed.
Last week, Powell lowered rates by .25% and now suggests rates will be lowered 2 times next year instead of 4. Why did he need to lower rates last week?
The current Federal Reserve members have a track record of acting primarily based on past economic data. I guess that is why they are Fed officials. Enough said.
Debt Ceiling – Government Spending
Last Friday, the House of Representatives finally reached a spending agreement to avoid a government shutdown. President-elect Trump was strong arming members to include a provision that would eliminate the debt-ceiling until sometime in 2027. That was eliminated to obtain the votes necessary. President-elect Trump is attempting to reduce government spending to reduce our annual deficit and overall debt, apparently. If you reduce our spending and increase our debt proportionately, that is not the answer, at least in my opinion. Stealing from Peter to pay Paul, well, we know that that goes.
Most people know, I’m fiscally conservative. I do believe programs for the less fortunate must be fully funded as we need to have a heart in this country.
I do not believe in giving money away money for free. Each time thi happens, the rest of us pay. When we cancel student loan debt, we pay. When we send money to Ukraine, we pay. When we reduce taxes and don’t have another way to make up for that revenue, we all pay. Both Republican and Democratic administrations have done a nice job in spending to increase the debt that you and I owe. In the United States Fiscal year ending October 2024, we paid a mere $1,000,000,000+ in interest on our debt. Many people say not a big deal. Hmmm!!
Markets
Last week witnessed major stock market indexes shredding recent gains as the Dow Jones lost (1.96%), the S&P 500 (1.60%), the Nasdaq (1.38%) and the Russell 2000 (3.88%).
Foreign stocks followed the lead, dropping (4.13%) and Emerging markets down (3.61%).
Interest rates on the heels of fairly strong economic data and the Fed’s dot plot suggesting 2 rate decreases next year, rose for the week. The 10-year US Treasury yield ending the week @ 4.53%.
Should you be overly concerned about stock market pullbacks? Of course I’m concerned, however not near making any defensive changes at this time. The concern at the end of the day, will corporate profits increase as expected in 2025? For now, I’m leaning to the positive.
Happy Holidays
I hope that as each year concludes, everyone can appreciate the goodness in their lives and also appreciate those no longer with us.
For me personally, I’m grateful for my wife, my daughter, and the remainder of my extended family.
When it comes to you, my clients, I come to work each day with an attitude to take the best care of you possible. It is an absolute pleasure and an honor as I am blessed to have your confidence.
Losing my best friend to cancer earlier in the year was a real wakeup call, not that I needed it. For me, it serves as a challenging reminder for all to make the most out of each day and every year.
