1/19/25

Weekly Market Recap

Last week was a strong one for U.S. stocks, with most of the major U.S. indexes reaching their highest point of the year. Bonds are flat year-to-date, after experiencing small losses in the first two weeks. Much of the positive market activity occurred on Wednesday, when the December inflation report was released. Inflation increased by 0.4% in December, which on its own isn't particularly positive news. However, a deeper look reveals why the market responded favorably to this report. For one, the core inflation number, which excludes food and energy, only rose by 0.2%. Since food and energy prices can be volatile, some prefer to exclude these components to get a clearer picture of overall price trends. Another reason this inflation report was viewed positively is that shelter costs (rent) continued to moderate, rising at a year-over-year rate of 4.6%, compared to 4.7% and 4.9% in the previous two months. While rents are still increasing, they are doing so at a slightly slower pace. Additionally, 9% of S&P 500 companies have now reported earnings, and things are off to a good start. According to FactSet, companies that posted strong year-over-year earnings growth included Eli Lilly, JPMorgan Chase, Amazon, Citigroup, and Bank of America.

Chart of the Week

Our chart of the week shows the average tariff on goods imported into the United States from 1930 to the present day. As you can see, tariffs used to be much higher, and they have declined significantly over the past century. The gray shaded bar represents the proposed increase in tariffs under the new administration. Clearly, this would be a substantial increase, and it would likely have a negative effect on inflation and consumption. However, it is uncertain how many of these proposed tariffs will actually be implemented. The former, and soon-to-be current president has used tariffs as a negotiating tactic in the past. Still, market participants are likely expecting some increase in tariffs, as the U.S. dollar index (DXY) has appreciated in value since Trump’s election. Higher tariffs mean less demand for foreign goods, which leads to reduced demand for foreign currency, causing the value of the U.S. dollar to appreciate relative to foreign currencies.

Written by:

Ben Rones, CFA®

Senior Analyst at R&R Financial

The commentary in this newsletter is for informational purposes only and should not be taken as personalized investment advice

Chart of the week Source: Tax Foundation, United States International Trade Commission, U.S. Department of Commerce, J.P. Morgan Asset Management.
Imports for consumption: goods brought into a country for direct use or sale in the domestic market. *Estimate is by the Tax Foundation as of October 2024 and assumes a 20% universal tariff as well as a 60% tariff on Chinese imports. May not be updated as of the latest announcements regarding tariffs and U.S. trade policy and is subject to change. Forecasts are based on current data and assumptions about future economic conditions. Actual results may differ materially due to changes in economic, market and other conditions.
Guide to the Markets – U.S. Data are as of January 16, 2025.