January 20, 2025

“The best time to plant a tree was 20 years ago. The second-best time is now.”

Chinese proverb.

Happy Martin Luther King Day and Inauguration of the 47^th President of the United States.

Well, today is one for the ages, the nonconsecutive inauguration of the President for a second time; only the second time in history it has ever happened, (Grover Cleveland was first), the college football national championship game (Ohio State vs. Notre Dame), and celebrating the life of the historic civil rights pioneer, all on the same day. But first the numbers.

Wall Street seemed to like today’s events by delivering a very robust week last week. The S&P 500 bounced back up 3.71%, The Dow Jones Industrial Average book a gain of 3.73%, and the Nasdaq led the party up 3.84%. Internationally the FTSE 100 got in the act up 3.11% and the MSCI-EAFE also added 2.3%. The 2-Year treasury paid 4.283% and the 10-Year finished with a yield of 4.623%.

So, what happened to reverse the dour mood Wall Street seemed to be taking in recent weeks?  Could it be a dramatic change in economic policy, the strong earnings reported by the Big Banks, or the probable deal in the Middle East? (anybody remember 1980 right before Reagan took office with similar rhetoric as President Trump to the Iranians?). Probably a combination of all three plus a strong jobs report and inflation still giving the Federal Reserve pause.

Let’s Start with the banks, which normally are a reasonable indicator for the year ahead. As Barron’s Brian Swint reports last week, “The good times are rolling for America’s big banks. JPMorgan Chase, Citigroup, Goldman Sachs, and Wells Fargo all reported impressive earnings beats and said demand for credit is strong— which is a good bellwether that suggests the broader economy is in good shape. Interestingly, profits from lending were down slightly, but that makes sense because interest rates fell last year. Nevertheless, investment banking and trading profits were soaring. That also makes sense—mergers and acquisitions, which create handsome fees, are more likely to happen when interest rates are neither too high nor too low—when the economy isn’t booming or slumping, in other words. That’s when both sides are most likely to feel like they’re getting a good deal. The economy is doing well and it’s clear what’s behind that. Strong jobs figures from last week, combined with a report yesterday that showed core inflation cooling, suggest Goldilocks is alive and well—activity is not too hot and not too cold. JPMorgan CEO Jamie Dimon, however, has made a career out of worrying. He noted that inflation may remain a problem, preventing the Federal Reserve from lowering interest rates as much as investors would like. Geopolitics are also a concern. Even though the shaky Gaza cease-fire looks promising, Russia and China will pose foreign policy headaches for President-elect Donald Trump, who takes office today. Dimon has been wrong before—when the Fed started raising interest rates in 2022, he famously predicted an “economic hurricane” that never arrived. But even Dimon was mostly chipper, quick to point out that unemployment is low, consumer spending is strong, and businesses are optimistic. That should be good for everyone, not just banks.” If anyone saw it, he also gave network reporter Leslie Stahl a lesson on Trumpism, classic response to a gotcha question on tariffs.

Internationally, after a tough start to January, some good news came about a Gaza ceasefire deal. The long-awaited agreement is good news for the world — and possibly for the markets.

How is Inflation doing? From Barron’s and Market Watch reporting, “The core inflation readings came in softer-than-expected while markets celebrated a softer core inflation earlier last week, the data still show a painful picture for consumers. Energy prices surged in December and food inflation levels remained more elevated than the summer—which likely left many consumers feeling the pinch. The consumer price index climbed 2.9% year over year in December, the Bureau of Labor Statistics reported Wednesday. That’s a firmer print than the 2.7% rate recorded in November and higher than economists’ consensus calls for a rise of 2.8%, according to a FactSet survey. The core reading measured 3.2% year over year in December. That’s a slowdown from November’s 3.3% pace and softer than economists’ expectations. Core CPI rose 0.2% from November to December, in line with economists’ forecasts and a slight improvement from the 0.3% rate logged in November. Shelter and services price growth proved softer last month, components that have previously been a sticking point and therefore helped drive the cooler core reading. The core reading measured 3.2% year over year in December. That’s a slowdown from November’s 3.3% pace and softer than economists’ expectations.”

What does it mean? That the Federal reserve will slow down interest rates cuts, mortgage rates have already jumped on this news, and until we get some real relief in the inflation, and I mean prices actually going down this nervousness will continue. The hope is the Trump administrations plan to unleash the American energy sector has proven, in the past, to be such a catalyst for prices to turn south.

Speaking of the Trump administration it seems all the noise about President Trump’s cabinet picks seem to be fading due to those nominees acquitting themselves quite well against Democratic political attacks, and the unique phenomenon that the Republicans in both the house and senate got the message and seem to be prepared to give the President the team members he wants.

Last week we added a “toe in the water” move on Crypto adding CPRT, a crypto currency ETF to most portfolios, though as an old-time value investor, we are still trying to get a grip on this asset, but with the new administration’s tacit approval and the interest in the investment by the next generation of investors, we felt we need to get some exposure. Also, we lighted international and added more to US big board holdings as we believe the US markets will still be the place to be in 2025.

Finally, The U.S. Supreme Court on Jan. 17 turned away TikTok’s request to halt a federal law requiring indirect owner ByteDance to divest itself of the company by Jan. 19 or cease U.S. operations. This despite President Trump change of heart to seek a solution once he takes over today, but the court spoke loud and clear 9-0, that national security concerns must be addressed.

Mike