The Federal Reserve Interest rate decision along with President Elect Trumps agenda is front and center.
Will the Fed cut rates by another .25%? Last week, for the 4th month in a row the CPI increased .3%. Down significantly from our recent inflation highs, the math is not yet pointing to the Fed’s desire, a 2% inflation rate. I continue to be in the camp, unless the economy weakens, the intermediate inflation rate will be in the 3% plus range going forward.
Investors and economists widely expect the Fed to cut this Wednesday then likely sit back. We do not know if and if so, to what extent Tariffs will impact our economy. We are not absent an abundance of opinions. Many believe Tariffs will increase the cost of goods and services, fueling inflation. Others believe Tariffs will equalize the international trade deficit benefiting US Manufacturers.
The US unemployment rate stands at 4.2%. Consumers have not shown evidence of slowing down their pace of spending. Typically rate reductions occur when the Fed is concerned with the economy slowing and wants to encourage additional borrowing and economic activity. As of now, there is little evidence of an economic slowdown.
Personally, I prefer the Fed to keep the bullets in the pistol for the time being. We will likely have reducing regulations with economic stimulus in the form of no tax increases and perhaps tax decreases in certain areas.
Predictions for the S&P 500 range from highs over 7000 to a low of 4450. Most prognosticators are leaning positive. Keep in mind, the market in 2024 outperformed the majority of expectations.
The S&P 500 has a forward Price to Earnings Ratio (PE) of approximately 22.3. The 5-year average is in the high 19 range.
The question of performance will likely be determined by how much corporate profits increase in 2025. The interest rate environment is expected to stay range bond, consumers are expected to continue to spend, and corporate America appears to be planning to increase capital expenditures which is positive for both the economy and the markets.
It’s hard to argue against markets moving higher. Range bound interest rates, low unemployment, increasing corporate profitability, consumer spending, decreasing regulations and taxes not increasing.
How will 2025 play out? Typically, not exactly as any of us expect.
Last week, stocks were mixed as the Dow retreated (1.75%), the S&P 500 (.67%), and the Russell 2000 (2.75%). The Nasdaq managing a small gain of .33%.
Interest rates landed on the higher end of the current range, as the 10-year finished last Friday with a yield of 4.395%.
Addition to Staff
It is my pleasure to introduce Ben Smith. Ben is the first step to the Retirement Refined expansion plan.
Ben is a graduate of the University of Delaware where he double majored in Finance and Financial Planning & Wealth Management. Ben has 3 years of existing experience in the financial planning industry.
Ben will serve as our in-house paraplanner, focusing on assisting Paul to both update existing client financial plans as well as constructing plans for new clients.
Ben’s other duties include investment, economic and product research in addition to supporting the overall client service experience.
I believe Ben has a significant future and will have an immediate impact for the clients of Retirement Refined.
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
