Caught up to the markets this week. As they closed with significant losses unable to cope with the pace of change. Since Tuesday the S&P 500 fell 101 points or 1.65%, the NASDAQ slipped 503 points or 2.51% while the DOW gave up 1,143 points or 2.57%. That said the major averages remain in the black for the year. On a brighter note. AI continues its rapid pace of change. Driving gains in productivity and capex spending. Both of which are occurring at an accelerating pace ahead of expectations.
Trumps Policies Of Uncertainty
With endless headlines involving Elon Musk, DOGE and a radical pace of change. It’s difficult to know where to start or finish from one week to the next. All of the announcements regarding program cuts, closing bloated and inefficient bureaucracies. Cutting waste, fraud and abuse. Layoffs both directly and indirectly are mounting. While this data will take a couple of months to begin showing up in various reports. Based on the headlines. I doubt it will be trivial, especially if the Department of Education is cut. Tariffs also add to the climate of uncertainty. This bleeds through to inflation. Some of this will likely prove deflationary, other parts inflationary. Last but not least inbound immigration has come to a screeching halt, while deportations are soaring. Something that’s likely to produce mixed results with respect to inflation.
More Inflation Surprises Ahead?
In the last few years inflation has tended to jump to begin the year and slip as Christmas approaches. This pattern seems to be repeating in 2025 with notable increases during January and February. In the Core CPI, ISM Manufacturing & Services Prices, University of Michigan Inflation Expectations and the PPI. Year-over-year trends continue to exceed the Fed’s 2% target. Despite the hotter than desired inflation data. Monetary policy remains restrictive. So far, the impetus to cut rates is subdued. With just one .25% cut expected this year.
Pace Of Change Is Too Fast?
The recent .9% drop in January retail sales, the largest decline since 2023. Was followed this week by disappointing news from Walmart. When the retailer noted uncertainties related to consumer behavior and global economic and geopolitical conditions. During its latest earnings report. As high prices and high interest rates continue to dampen consumer enthusiasm. While 1-month does not make a trend. Retail sales make up about 70% of total economic activity. So, it is worth noting and watching.
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Last Week’s Post: The Speed Of Chaos
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