Economic Updates for January 2025
Summary
Tariffs, Tech, and Trends: Economic and Market Outlook for 2025
The economic news is overall positive, while the markets are experiencing higher volatility.
Regarding the economy, the GDP expectation for Q1 2025 looks positive. Payroll numbers are steady, and unemployment has ticked down slightly. Both Manufacturing and Services PMI indicates expansion, suggesting a healthy economy.
Everyone is closely watching how the tariff negotiations go. While there is optimism that the impact of tariffs may be surgical, it may turn more pervasive and bring about inflationary forces back into play.
On the markets, the news from deepseek pushed volatility higher. While the earnings report from the top tech companies have been robust, market is digesting their appetite to continue to spend. Meanwhile, industrials and materials sector has topped the board for year to date returns pushing the tech sector behind.
We anticipate this year to be relatively more volatile and hope that we see more breadth in the S&P 500 sectors with relative outperformance from some of the laggards of 2024.
Broad Indicators
Atlanta GDP NowCast
Conference Board's Leading Economic Indicator
US Dollar Index
Commodities
Gold
Gold continues to perform very well even with a stronger Dollar.
Bitcoin
It is interesting to see that Gold has diverged from BitCoin. BitCoin has behaved more like a risk asset such as tech stocks.
Inflation
CPI Month over Month
PPI Month over Month
Reported Year over Year Inflation Rate
CPI Components
CPI Components This MonthThe contributors to the inflation have been mainly food and transportation. (Please note that the y-axis in both the graphs have different scales).
One Year Inflation Expectations
Sentiments
Consumer Sentiments
Investor Sentiments
The AAII sentiment has been turning bearish over the last few weeks.
GDP Factors
Manufacturing PMI
Services PMI
Industrial Production
Retail Sales
Non-farm Payrolls
Total Vehicle Sales
US New Home Sales
30 Year Fixed Mortgage Rates
The mortgage rates have followed the 10-year Treasury yield lower over the last couple of weeks.
Employment Indicators
Historical Unemployment Rate
US Jobless Claims
This chart will be the first indicator of a telltale sign that unemployment is increasing. As you see the continuing
jobless claims number rise, it implies the people who lost their jobs are not going back to labor force fast enough
and the unemployment rate is starting to creep higher. Over the last couple of weeks, it has remained roughly flat.
Market Indicators
Yield Curve Inversion
Yield Curve - then and now
Yield curve - Then
Yield curve - Now The yield curve is certainly reverted back to normal. Over the last few weeks, the long end of the rates have edged lower.
Market Sectors
High Yield Index Options-Adjusted Spread
If the economy were to enter a recession, it is likely that some of the companies will struggle to keep up with their debt payments causing their credit spread to widen. This indicator shows how the credit spreads have been behaving well so far even in the face of the Yen carry trade unwind.
The spread is 2.66% currently and it is as tight as we have seen it.
Put Call Ratio
A spike in put / call ratio indicates that investors are very apprehensive about a sudden fall in the equity markets. You can clearly spot the deepseek moment that caused a spike.
S&P 500 Current Valuations
The current earnings forecast by equity analysts estimate the earnings potential for S&P 500 companies to be around $272 which translates to a price to earnings ratio of 22.1 at the current S&P 500 price level. This is above the 5 year and the 10 year averages. The market still remains pricey.
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