Inflation was front and center this week with the release of the December Consumer Price Index (CPI) report. Inflation of 7% Headline and 5.5% Core (ex Food and Energy) were in line with consensus expectations.
Under the Hood (of Capital Markets)
Not Your Father's Stagflation
Inflation continues to be in the news and is top of mind for clients. This week, the September Consumer Price Index was reported 5.4% over the previous year, an inflation number well above where it was reported prior to the COVID-19 crisis.
Seasons of Change
For many, 2020 has been a year to forget. Headlined by the COVID-19 pandemic and the ensuing global response, stimulus from central banks and governments has helped limit the damage, as the U.S. economy has now experienced its shortest and steepest recession ever.
Healthy Consumer, Healthy Economy
This week, the Federal Reserve made big news when it reduced the federal funds rate by 0.25 percent, its second cut this year. While any Fed action always dominates the headlines, the interest rate reduction was expected and fully priced into the market. Having raised federal funds a quarter point just last December, it has been a rather dramatic change of monetary policy in which the Fed has now cut rates twice this year.
Short Pullback in a Long Bull Market
In recent weeks, the 10-year U.S. Treasury rose to three-and-a-quarter percent—a level not seen since 2011. In addition, the stock market sold off five percent from all-time highs, volatility has risen and the Chinese and European markets dipped. All this amid a backdrop of good corporate earnings and moderate-to-good economic news.
Inflation is in the Eye of the Beholder
This week, the U.S. Bureau of Labor and Statistics (BLS) released their monthly measurement of inflation: Consumer Price Index (CPI), annualized 2.7 percent, was down 0.2 percent from the month prior.
What Matters for Stocks
If you break the stock market down into its most basic elements only two things matter: earnings of companies and what investors are willing to pay for a dollar of earnings. This week, earnings season for the second quarter of 2018 was in full swing and investors are digesting the news.
Path to Productivity
Since the Tax Cuts and Jobs Act was signed into law on December 22, 2017, pundits and economists have continued to debate if companies would increase their capital expenditures due to the 100-percent-expensing provision in the new tax code.