Wall Street closed out a tough week on Friday with a 1% retreat, but overall, for the month of January, it was a positive story with an advance of nearly 3%. On Wednesday, the central bank maintained its key policy rate unchanged after three straight rate cuts to end 2024. Fed chair Jerome Powell noted that inflationary risks had returned. But, on Friday, the US Federal Reserve’s favorite inflation gauge came in line with expectations at 2.4%. But even that bit of good news wasn’t enough to calm investors trying to read the tea leaves as to what the White House will or won’t do, means or doesn’t mean when it comes to triggering a regional or global trade war. And as if that weren’t bad enough, President Donald Trump issued a fresh round of trade threats to end the week.
Big tech earnings have been mixed thus far. Meta Platforms reported that its Q4 net income jumped by nearly 50%, bolstered by successful AI bets and a forecast of a “really big year.” Over at Microsoft, cloud computing sales missed estimates, prompting the stock to drop 4.6%. Meanwhile, Tesla’s stock revved up 4.1% despite a slide in profits, as more promises were made on the timeline of robotaxis.
Bottom line is – Uncertainty reigns as Trump tariff policies loom.
Future Wealth’s View
The investor sentiment is certainly changing with rotation underway from technology stocks to financials, to healthcare and more conservative sectors of the market. Inflation continues to ease and employment still looks good. But, that isn’t how it feels on the ground. Jobseekers say it’s taking longer to find work as doubts about making ends meet persist. US consumer confidence suddenly dropped in January to a four month low in part to outlook for the broader economy. Complaints that jobs are harder to get are up while expectations that wages will rise are down—as is the number of people saying business conditions are good.
Wall street hates uncertainty and Trump’s policies inherently lend itself to more uncertainty. Will he back off from the 25% tariffs on Canada and Mexico or will he see it through? Will he leave Greenland alone or will he send military power to annex it? Will China retaliate with its own tariffs in response to the 10% tariff that Trump has imposed on them or acquiese to his demands?
Trump tariffs will be paid in the form of higher prices for imports and their substitutes, and lower profits and wages for everyone who works in export industries. It is estimated that inflation will rise to 3% from 2.4% if the 25% tariffs are enforced. Of course, Trump will deny and deflect any increase in inflation as “fake news”. Alienating allies and partners that the U.S. desperately needs means that “America First” could quickly become “America Alone.” We can only hope that his actions will not significantly worsen inflation and cause financial aftershocks that could destabilize the worldwide economy.
We, at Future Wealth LLC, opine that now is not the time to take big risks in the stock market. The ending may not be pretty.