In our recent travels, we heard from two strategists, Paul Ma from Fidelity and Robert Stein from First Trust. While the US still has its share of long-term problems, we came away from these meetings feeling much more positive about where things are heading over the next year.
Inflation may be coming down: rents dropped 5% in December, wage inflation has decreased to 4%, and tariffs have settled at a more reasonable level.
Lower inflation will allow the Fed to cut rates, which it wants to do. The market will likely respond positively to this.
Last month’s tariff problems will likely turn into a slew of trade deals over the coming months (as the US has already done with Great Britain and much of the Middle East). These deals could help increase American exports.
Lastly, tax cuts are expected, which will be another economic stimulant. While it’s still in flux, the bill is likely to extend the 2017 Trump tax cuts, improve the SALT deduction, lower taxes on Social Security income, and potentially raise the standard deduction.
An interesting trend we’re watching is that while the Fed cut rates in 2024, the yield on the 10-Year Treasury has actually increased. This is somewhat abnormal and appears to be a market response to the lack of fiscal responsibility from the US Government. Meaning, the US Government needs to pay a higher rate to entice investors to lend it money. If the Government’s ability to access cheap debt is on hold indefinitely, programs like DOGE could be here to stay.
Very long-term, demographics are what drives both economic and market growth. The US, Brazil, and India are all expected to have population growth of at least 0.5% per year over the coming decades, which will help the economy in these countries. China, South Korea, Japan, and most of Europe have shrinking populations, which will be an economic problem for these countries.
Thanks for reading, and we hope to hear from you with any questions.