January – Looking Ahead

​As each new January arrives, there is always a level of uncertainty that comes with it as we consider the passing of another year. At Traditions Wealth Advisors, we alleviate that uncertainty as best we can by keeping you informed and up-to-date on the macroeconomic forces at work in this world and the effect they may have on your investments.

With a little bit of assistance from 2024, 2025 started off on a relatively good note for the United States economy. The inflation and employment reports for December were both viewed positively by investors, as our robust domestic situation continues to support the new heights that financial markets seem to be reaching every day. Yes, headline inflation surprised to the upside, rising 0.4% on the month and bringing the twelve-month inflation reading to 2.9%, but this was carried primarily by a rise in volatile food and energy prices. When that volatility is removed from the equation, prices only rose 0.2%, lowering the year over year rise in Core CPI to 3.2%. As it stands, headline and core inflation are trending towards a 3% year over year increase. The unemployment rate held steady at 4.1% and total nonfarm payroll employment increased by 256,000. Something worth consideration is that a large chunk of backend 2024 employment gains were made in the healthcare and government sectors specifically. Do not be surprised if employment in those sectors begins to level off in 2025 as the new administration implements return to office mandates and attempts to improve government efficiency.

The upcoming Fed rate decision on January 29th should provide clarity on how far their current “policy adjustment” will extend. In the most recent speech from a member of the Federal Reserve Board of Governors, Michelle Bowman expressed “concern that the current stance of policy may not be as restrictive as others may see it.” She remarked that the current borrowing costs and interest rates do not appear to be providing a meaningful restraint to economic growth and advised caution moving forward. Also, inflation is not making significant progress towards the Feds espoused year over year target inflation rate of 2%. So what does this mean for 2025? Investors seem to think the Fed will assume a much more measured approach to this cutting cycle. Markets are pricing in only two more rate cuts for the entire year, with the first one predicted to occur in June. These cuts may not end up happening at all, which is probably for the best if the stock market and US GDP continue their robust growth.

 As far as the global outlook is concerned, much ado is being made of the “Trump Tariffs” and how they could disrupt international trade. At the moment, Trump has threatened to impose 25% tariffs on Canadian and Mexican goods beginning February 1st. He has also said he will slap a 10% tariff on Chinese goods that day too. These tariffs would be in response to what he has said are the failures of each nation to prevent fentanyl and migrants from illegally entering the United States. However, he had also promised to impose tariffs on those nations and many others the day he returned to the Oval Office. That did not happen. The threat of tariffs may materialize into actual tariffs, and February 1st could be the day they do, but financial markets are pricing in a low probability of this occurring. If he does decide to impose those tariffs, we would likely be in for a day or two of extreme stock market volatility that would ultimately settle down in the following weeks as corporations and small to medium-sized businesses adjust to the new reality. As for Mexico and Canada, 25% tariffs on all of their exports to the United States could be enough to send both countries into a recession immediately.
           
At the end of the day, 2025 should be approached with cautious optimism. Caution because of a changing political situation and the looming debt threat. Optimism because the underlying strength of this exceptional United States economy continues to defy all expectations of what it can achieve propelling growth and equities to places they have never been before. Through it all, Traditions will be keeping an eye on everything to make sure you are as informed as possible for decision-making purposes.

​Traditions Wealth Advisors
Greysen Golgert/Brien L. Smith CFP®
Economic Analyst Intern/Chief Investment Officer
January 26, 2025

Sources:
https://www.wsj.com/economy/central-banking/week-ahead-for-fx-bonds-fed-ecb-decisions-in-focus-c42d243b?mod=economy_lead_story
https://www.troweprice.com/financial-intermediary/us/en/insights/articles/global-markets-weekly-update.html?
https://www.mauldineconomics.com/frontlinethoughts/a-possible-storm
https://www.federalreserve.gov/newsevents/speech/bowman20250109a.htm