Focusing on what matters most is crucial in today’s market. This week’s Steady Investor covers three key themes shaping the investment landscape to help you stay ahead:
What December CPI Inflation Data Tells Us – The report was mostly good news—in December 2024, the U.S. Consumer Price Index (CPI) rose by 0.4% month-over-month, which was in line with expectations. Core CPI rose by 0.2% from November, which marked the first deceleration in six months. On an annual basis, headline inflation increased by 2.9% while Core CPI rose 3.2%. As any reader can surmise, these annual rates of inflation are still well above the Fed’s 2% target. But the constructive outlook for inflation and Fed policy comes from two key takeaways. The first is that energy costs and shelter costs were outsized contributors to December’s headline increase, while underlying price pressures—in a broad swath of goods and services—showed continued signs of easing. This inflation print gave some investors a reprieve, as the case of a Fed “pause” in rate cuts was given more flexibility with this data. Federal Reserve officials did not necessarily throw cold water on this thinking, but they indicated that some modest easing in underlying price pressures is not sufficient to prompt an immediate rate cut. We also know the Fed has some sensitivity to the prospect of new tariffs under the incoming administration, which could introduce uncertainty and exert upward pressure on inflation. Overall, while the December CPI report offers some optimism regarding the trajectory of inflation, it underscores the importance of monitoring forthcoming economic data and policy developments to assess their implications for future monetary policy. All in all, we do not see any surprises that would prompt the Fed to alter their thinking or the path of interest rates, which we generally view as a positive for markets—i.e., the market does not like surprises.1
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Manufacturing Activity Sees Early Signs of Rebound – U.S. factory activity saw a nice uptick in December, with industrial production experiencing a notable increase of 0.9%—the most significant monthly gain since February and ahead of expectations. This growth was largely fueled by a 0.6% rise in manufacturing output, which benefited from the resolution of labor disruptions in the aerospace industry. The aerospace sector experienced a sharp 6.3% increase in production, contributing significantly to the overall manufacturing boost. Additional gains were observed in the production of consumer goods and construction materials, and utilities output expanded by 2.1% largely due to a surge in natural gas production amid colder weather conditions. Capacity utilization, which measures how efficiently firms are using their resources, climbed to 77.6%, reflecting an improvement in operational efficiency. These trends indicate that the manufacturing sector may be stabilizing after facing prolonged challenges over the past two years. But the aerospace component is important to keep in mind, as this was largely tied to the Boeing work stoppage. Zooming out, manufacturing output remained stagnant compared to the previous year and showed a 1.2% decline over the fourth quarter of 2024, so it’s likely too early to call this a manufacturing renaissance.3
U.S. Consumers Deliver a Solid Holiday Shopping Season – The U.S. consumer is still healthy. In December 2024, U.S. retail sales experienced a 0.4% increase, following an upwardly revised 0.8% gain in November, indicating robust consumer demand during the holiday season. The National Retail Federation reported that holiday retail sales reached $994 billion, marking a 4% year-over-year increase. Notably, the control-group sales—which exclude food services, auto dealers, building materials stores, and gasoline stations—rose by 0.7%, the most significant gain in three months. This suggests a strong contribution to the gross domestic product (GDP) from consumer spending in Q4, which likely means we will see a strong growth print to end of last year. Looking ahead, stability in the U.S. labor market will likely contribute to rising real wages and discretionary income, so we believe the U.S. consumer will continue to hold up just fine.4
The Overlooked Benefits of Active Management – Passive investing offers simplicity, but it can leave valuable opportunities on the table—like capturing alpha, optimizing taxes, and managing risks more effectively.
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