Monthly Commentary
For the first time ever, the Philadelphia Eagles are the Super Bowl champions! What a phenomenal game and as a long time Eagles fan, it was a joy to watch and couldn’t be more happy for the entire organization. The US stock market charged higher in January but started to stumble at the end of the month and into February as the tax benefits were digested. The Fed kept rates unchanged in a surprise move as Yellen departs and Powell takes the reigns. The Fed is worried about the potential for inflation to increase this year and have included my own thoughts about this below. Mnunchin is all for a weaker dollar and stated this publicly at Davos. He believes this will be good for our economy and in some ways it will and in other ways it won’t be. A weak dollar is good for exports and bad for imports so it’s a mixed bag.
If you’ve been following cryptocurrencies, Bitcoin (along with most others) have been in a steep decline since they peaked in mid-December. Bitcoin is now trading around 7,000 from hitting almost 20,000 in mid-December which represents a 65% loss in value had you bought then! Buyer beware. Again, I believe in the power of blockchain, not cryptocurrencies and would treat any amount invested the same way you do when walking into a casino. Don’t gamble if you can’t afford to lose.
Three corporate behemoths — Amazon, Berkshire Hathaway and JPMorgan Chase — announced they would form an independent health care company for their employees in the United States. This is a sign of how frustrated businesses are with the state of our health care system. Their fed up and not going to take it any longer…maybe. Details were scant and it’s unclear what they’re actually going to do. Still, it makes you stand up and take notice.
My 2 Cents:
The biggest potential shock in my opinion could come in the form of inflation. I’ve seen countless reports about businesses increasing wages and paying out one time bonuses as a result of the tax cuts. It’s still too early to tell if we’ll see a meaningful increase in wages across the country and if we do, will it show up in the data in a real way.
In terms of inflation and CPI, energy and owner’s equivalent rent are doing most of the work. With energy continuing to rise, it’s possible this trend continues. But with interest rates increasing and mortgage rates going higher, it’s possible we see owner’s equivalent rent drop putting downward pressure on CPI.
Sticky Core Inflation (ex-housing) is only running around 1.25%. Again, if we see meaningful pickup in wage inflation, we could see a broad increase in inflation. If that happens, the Fed will raise rates quicker which also has it’s own set of consequences.
Charts & Commentary
The bank’s cross-asset measure of risk appetite around the world is the highest since it started the gauge in 1991. Euphoria is turbo-charging global equities while 10-year U.S. government bonds are suffering their worst performance in risk-adjusted terms, according to Goldman. (…)
I hope you enjoyed this months financial markets update. If you have any questions please contact us directly. If you’re interested in a topic that you’d like us to address, please email us so we can include them in future updates.
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Jared Toren
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