Jake McCue here! I’m pleased to be contributing to Secured Retirement’s Market Forecasts and I couldn’t be happier to work with this esteemed group of professionals. I’m an Investment Strategist, Financial Advisor, CFA Charterholder, and Certified Financial Planner who’s been in the business for more than 10 years. I look forward to bringing you these updates so that you can stay informed, and understand what we’re following and what it could mean for your financial future. We want to provide insights that offer peace of mind – so you can get back to enjoying life. If you’re interested in digging into the details, my door is open to those who nerd out on this stuff. Without further ado, here’s my update on the current market.
The Labor Market
As you may have heard, The Department of Government Efficiency (DOGE) is making waves at federal agencies with layoffs and budget cuts. Ultimately, the workforce reduction at federal agencies accounts for a small fraction of the overall workforce – something like 2%, per nonfarm payroll data. The labor market, along with inflation, remains an important component in Federal Reserve decision-making. At the January 29th press conference, Fed Chair Jerome Powell described the labor market as “stable” and “broadly in balance.”
It’s worth remembering that last year’s biggest rate cut followed a surprise uptick in unemployment data. If we see headcount reduction without other hiring – also known as market softness – that could move the needle and push the Fed to act this year, the Chairman explained. Meanwhile, the Core Personal Consumption Index is holding steady at 3.3%, a January 12-month increase, reinforcing the Fed’s current wait-and-see approach on rate cuts.
Earnings
Fourth-quarter earnings in 2024 surpassed estimates and, as of mid-February, investors witnessed year-over-year growth at levels not seen in years. With 70% of S&P 500 companies reporting, sectors like Communication Services and Financials are among the leading sectors, delivering earnings that surprise at above the ten-year average. Earnings growth has been broad, spanning nine of eleven sectors, though Industrials and Materials have seen revenue declines.
While this earnings season has been strong, we see valuations running high – forward price-to-earnings ratios sit above both five- and ten-year averages. The blend of actual and still-to-report estimates is quite strong for the quarter, but with no immediate support from the Fed and potential hurdles with earnings on the horizon, the next few quarters may bring new challenges.
Market Momentum
The S&P 500 has been trading in a narrow range over the last few months in what technical analysts call a “flag” pattern. A setup that often precedes a bull market breaking out through recent highs. However, momentum has been weak, with less than 60% of stocks trading above their respective 50-day moving average. We’re also watching small-cap stocks for signs of broader participation in the rally, but so far, they haven’t outperformed.
Administration Policy & Tariffs
With Donald Trump officially back in office, we’ve already seen a flurry of executive actions that will surely shape policy for years to come. One current unknown is the effect the administration’s stance on tariffs and international trade will have on markets. Their current position, threats, and delays to enacting tariffs all play into tactics that will flow to companies and ultimately, to the consumer.
During Trump’s first term, steel and aluminum tariffs had a limited economic impact, but broader protectionist policies, like securing control of the Panama Canal and key global trade routes, could reshape supply chains and set up wider advantage for goods from China, for instance. The trade deficit surged 25% in December over the previous month as companies rushed to stockpile inventory. GDP growth is still increasing over 2% annually.
At the AI Action Summit in Paris, Vice President JD Vance emphasized the administration’s focus on ensuring the most powerful AI systems are built in the U.S. with domestically designed and manufactured chips. These chips are the processors in much of our personal technology, like cell phones and laptops. Taiwan Semiconductor Manufacturing (TSMC) currently dominates the market for advanced chips, and rather than imposing tariffs, the administration may explore partnerships to strengthen domestic manufacturing, potentially involving firms like Intel. In fact, Intel just had its best trading week in 25 years, despite lagging the S&P 500 over the past year.
With regulatory and policy dynamics at play, the evolving trade and technology markets will be key to watch.
Final Thoughts
I look forward to getting to know our clients in the years to come. What we do at Secured Retirement is always meant to be a benefit to your lifestyle, comfort, and happiness. The families we serve are everything to us. Please chime in with your own thoughts when these topics resonate. We’re just a phone call away: 952-460-3290. All the best.
Jacob McCue
Investment Strategist/Advisor
Secured Retirement
