{"id":13661,"date":"2025-02-26T19:01:05","date_gmt":"2025-02-26T19:01:05","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=13661"},"modified":"2025-05-12T14:37:56","modified_gmt":"2025-05-12T14:37:56","slug":"investors-should-start-looking-beyond-the-fed","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/investors-should-start-looking-beyond-the-fed\/","title":{"rendered":"Investors Should Start Looking Beyond The Fed"},"content":{"rendered":"\n<p><strong>It\u2019s Time for Investors to Look Beyond the Fed<\/strong><\/p>\n\n\n\n<p>The latest inflation reports indicate that the battle against price pressures is stalling.<\/p>\n\n\n\n<p>The Labor Department reported that in January, the consumer price index (CPI) rose 0.5% from December, which was nearly double expectations.<sup>1<\/sup> The year-over-year increase rose to 3%, which also marked an uptick from December&#8217;s 2.9% print and was substantially above the 2.4% trough reached in September 2024.<sup>2<\/sup><\/p>\n\n\n\n<p>To be fair, the Federal Reserve\u2019s preferred inflation gauge is the personal consumption expenditures (PCE) price index, not the CPI. But it too has shown signs of heating up. For the PCE price index, December\u2019s year-over-year print was 2.6%, well above September\u2019s 2.1% low point as seen on the chart below.<sup>3<\/sup><\/p>\n\n\n\n<p><strong><em>CPI (blue line) and PCE Price Index (green line) Have Been Trending Higher<\/em><\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"937\" height=\"329\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2025\/02\/image-2.png\" alt=\"\" class=\"wp-image-13664\" srcset=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2025\/02\/image-2.png 937w, https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2025\/02\/image-2-300x105.png 300w, https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2025\/02\/image-2-768x270.png 768w\" sizes=\"auto, (max-width: 937px) 100vw, 937px\" \/><figcaption class=\"wp-element-caption\"><strong><em>Source: Federal Reserve Bank of St. Louis<sup>4<\/sup><\/em><\/strong><\/figcaption><\/figure>\n\n\n\n<p><strong><u><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2025_02_24&amp;content=stock_market_outlook_report\" data-type=\"link\" data-id=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2025_02_24&amp;content=stock_market_outlook_report\">Navigate New Market Uncertainty with Our Stock Market Outlook<\/a><\/u><\/strong><\/p>\n\n\n\n<p>Rising inflation, shifting Fed policy, and global uncertainty are setting the stage for a turbulent year. With major economic forces at play, the stakes for investors have never been higher.<\/p>\n\n\n\n<p>Our <strong><em><u><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2025_02_24&amp;content=stock_market_outlook_report\" data-type=\"link\" data-id=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2025_02_24&amp;content=stock_market_outlook_report\">February 2025 Stock Market Outlook<sup>5<\/sup><\/a><\/u><\/em><\/strong> breaks down the key risks and opportunities ahead\u2014so you can stay ahead. Inside, you\u2019ll find:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Asset allocation guidelines<\/strong> for today\u2019s market environment.<\/li>\n\n\n\n<li><strong>Expert forecasts<\/strong> for inflation, rates, and economic trends.<\/li>\n\n\n\n<li><strong>Industry tables and rankings<\/strong> to help you spot opportunities.<\/li>\n\n\n\n<li><strong>Buy-side and sell-side consensus<\/strong> insights at a glance.<\/li>\n\n\n\n<li>And much more!<\/li>\n<\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to take charge of your financial journey, click the link below to get your free report today!\u00a0<br><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2025_02_24&amp;content=stock_market_outlook_report\" data-type=\"link\" data-id=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2025_02_24&amp;content=stock_market_outlook_report\"><u><br><\/u><span style=\"text-decoration: underline;\"><u>IT\u2019S FREE.\u00a0<\/u>Download our <em>February 2025 Stock Market Outlook Report<\/em><\/span><\/a><\/strong><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2025_02_24&amp;content=stock_market_outlook_report\" data-type=\"link\" data-id=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2025_02_24&amp;content=stock_market_outlook_report\"><span style=\"text-decoration: underline;\">5<\/span><\/a><\/sup><\/p>\n\n\n\n<p>My column this week is not about the return of inflation, however. I think it\u2019s probably too early to draw conclusions about inflation\u2019s path from here. What does appear clear, however, is that these data points are likely to restrain the Federal Reserve from cutting rates any time soon. In my view, I do not think there will be a change to the benchmark fed funds rate \u2013 up or down \u2013 until at least late summer or early fall.<\/p>\n\n\n\n<p>That means it&#8217;s time for investors to look beyond the Fed.<\/p>\n\n\n\n<p>The long-duration end of the yield curve matters most to markets in 2025, in my view, and that\u2019s the part of the curve the Fed doesn\u2019t directly control. The Fed can influence long rates with policies like quantitative easing, where bond buying can raise bond prices and put downward pressure on yields. But those policies do not make sense when the economy is growing and the labor market is stable, which is what we have today. As such, the long end of the yield curve is likely to be influenced more by inflation expectations and the U.S. government\u2019s fiscal health, both of which argue for rates moving sideways or even slightly higher in 2025.<\/p>\n\n\n\n<p>In other words, the reason to monitor inflation in 2025 is not to gain insight into the probability of rate cuts. The reason to monitor inflation is to understand how it might impact 10-year U.S. Treasury bond yields. This is where tariff policy will come into play, as this could be an \u2018extraneous factor\u2019 that could impact price pressures\u2014especially if the tariffs are excessively broad and met with retaliatory tariffs. This is an area of economic forecasting that is nearly impossible to predict, largely by design. The advice to investors here is to focus on what is done, not what is said.<\/p>\n\n\n\n<p>The other factor impacting long-duration Treasury bond yields is fiscal spending. The Trump administration has made waves with its early focus on cutting government headcount, agencies, programs, and overall spending. But it remains to be seen whether these cuts amount to the level of cuts needed to balance the budget, which currently has a deficit that is about 5% of GDP wider than it has been in previous expansion cycles. If the market gets the sense that deficit spending could get worse (perhaps via tax cuts), so-called \u2018bond vigilantes\u2019 could push bond yields higher at a time when high asset valuations make markets more vulnerable than usual.<\/p>\n\n\n\n<p>The other fundamentals investors need to track are consumer spending and corporate earnings. My outlook for both remains positive. We\u2019re expecting aggregate real U.S. compensation growth of 2+% in 2025, with consumer discretionary cash flow growth of roughly double the inflation rate. That should lead to a healthy pace of real spending this year, assuming the labor market holds strong\u2014which we believe it will.<\/p>\n\n\n\n<p>Then there are corporate earnings. Through the end of last week, we have seen results from over 75% of S&amp;P 500 companies, with total earnings up +11.8% from the same period last year on +5.6% higher revenues. The comparison charts below show Q4 earnings and revenue growth rates relative to previous quarters, which makes recent strength apparent.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"557\" height=\"364\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2025\/02\/image.jpg\" alt=\"\" class=\"wp-image-13662\" srcset=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2025\/02\/image.jpg 557w, https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2025\/02\/image-300x196.jpg 300w\" sizes=\"auto, (max-width: 557px) 100vw, 557px\" \/><\/figure>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"587\" height=\"384\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2025\/02\/image-1.jpg\" alt=\"\" class=\"wp-image-13663\" srcset=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2025\/02\/image-1.jpg 587w, https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2025\/02\/image-1-300x196.jpg 300w\" sizes=\"auto, (max-width: 587px) 100vw, 587px\" \/><\/figure>\n\n\n\n<p>If this pace of earnings growth holds, we could see 13+% year-over-year earnings growth for Q4 2024, which would be the highest reported earnings growth since Q4 2021. Looking ahead, we see earnings growth maintaining a strong overall pace relative to 2024, with a caveat that tariffs could potentially serve as headwinds if uncertainty lingers and barriers to trade ultimately move higher than they are today.<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"936\" height=\"612\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2025\/02\/image-2.jpg\" alt=\"\" class=\"wp-image-13665\" srcset=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2025\/02\/image-2.jpg 936w, https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2025\/02\/image-2-300x196.jpg 300w, https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2025\/02\/image-2-768x502.jpg 768w\" sizes=\"auto, (max-width: 936px) 100vw, 936px\" \/><\/figure>\n\n\n\n<p><strong>Bottom Line for Investors<\/strong><\/p>\n\n\n\n<p>Recent inflation readings are proving more stubborn than the Federal Reserve wants to see. While the Fed\u2019s stated goal is to move benchmark interest rates closer to the neutral rate (arguably somewhere in the 3.5% range), there are very few signs that the current fed funds rate of 4.25% to 4.5% is serving as a headwind to economic growth. In my view, this confirms that the Fed will firmly pivot into \u2018wait-and-see\u2019 mode.<\/p>\n\n\n\n<p>That means investors should shift their focus elsewhere. Inflation still matters greatly, but more for its effect on longer-duration Treasury bond yields. If rising inflation and\/or inflation expectations lead to upward pressure on 10-year U.S. Treasury bond yields, it could pressure high valuation areas of equity markets. Mitigating factors would be the strength of the U.S. consumer and corporate earnings, which carry outsize importance in determining the trajectory of the economy and markets in 2025.&nbsp;<\/p>\n\n\n\n<p>With these evolving dynamics, it\u2019s more important than ever to stay ahead of the curve. Our <a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2025_02_24&amp;content=stock_market_outlook_report\" data-type=\"link\" data-id=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2025_02_24&amp;content=stock_market_outlook_report\"><strong><em><u>February 2025 Stock Market Outlook<\/u><\/em><\/strong> <strong><em><u>Report<sup>6<\/sup><\/u><\/em><\/strong><\/a> equips you with the insights necessary to navigate the complexities of market shifts, including the effects of inflation, rising Treasury yields, and changing trade policies.<\/p>\n\n\n\n<p>Inside, you\u2019ll find:<strong><\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em>Current asset allocation guidelines<\/em><\/li>\n\n\n\n<li><em>Zacks forecasts for the months ahead<\/em><\/li>\n\n\n\n<li><em>Zacks Rank industry tables<\/em><\/li>\n\n\n\n<li><em>Buy-side and sell-side consensus at a glance<\/em><\/li>\n\n\n\n<li><em>And much more!<\/em><\/li>\n<\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click the link below to get your free report today!<br><br><strong><em><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2025_02_24&amp;content=stock_market_outlook_report\" data-type=\"link\" data-id=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2025_02_24&amp;content=stock_market_outlook_report\"><u>FREE Download \u2013 Zacks&#8217; February 2025 Stock Market Outlook Report<\/u><\/a><\/em><\/strong><em><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2025_02_24&amp;content=stock_market_outlook_report\" data-type=\"link\" data-id=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2025_02_24&amp;content=stock_market_outlook_report\">6<\/a><\/sup><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Fed appears to be in wait-and-see mode, and investors should look at other factors to gauge inflation&#8217;s effects, including bond yields, consumer spending and corporate earnings.<\/p>\n","protected":false},"author":3,"featured_media":13568,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-13661","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13661","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=13661"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13661\/revisions"}],"predecessor-version":[{"id":13667,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13661\/revisions\/13667"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media\/13568"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=13661"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=13661"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=13661"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}