Weekly Market Update: January 20, 2025
The nation added an estimated 256,000 jobs in December. That figure far exceeded the consensus forecast of 155,000 and was 44,000 above the revised November tally. The gain included private-sector growth of 231,000 positions, which speaks volumes about the quality of job creation activity and the overall health of the labor sector. In addition, the Job Openings and Labor Turnover Survey (JOLTS) showed an uptick in the number of available positions last month.
The inflation situation remains unresolved for the Federal Reserve. The much-anticipated December Consumer Price Index (CPI) rose 0.4% and 2.9% on a month-to-month and one-year basis, respectively. The core CPI, which excludes the energy and food components, climbed 0.2% and 3.2%, respectively. In all, the report showed that the pace of price growth is still running above the Fed’s target rate of 2.0%. However, Wall Street took some solace in the cooler core CPI reading. The companion Producer Price Index (PPI) painted a similar picture, though both reports still indicate sticky inflation.
Treasury yields are elevated, but did ease some on the December price data. The CPI report opened the door a bit for a few interest-rate cuts this year. However, we don’t think the Fed will be in a rush to do any further easing before midyear. Too, a near-term re-acceleration in inflation is possible and would likely place additional pressure on bond yields.
With borrowing costs likely to remain elevated this year, profit growth will be needed to justify the stock market’s rich price-to-earnings multiple. That said, with the economy on a better track than most pundits would have anticipated at this stage of the upcycle, and the Trump Administration focused on pro growth policies (i.e., lower taxes and fewer regulations), further corporate gains in 2025 are plausible.
Conclusion: The stock market is off to a choppy start in 2025, with worries about inflation—and a likely less-dovish Federal Reserve with regard to monetary policy— unnerving investors. However, with the fixed-income market also hurt by higher Treasury yields, a portfolio consisting mostly of high quality companies with a history of generating steady earnings and cash-flow growth may prove astute.
Source: ValueLine.com
