Core CPI printed cool at .2% vs. .3% with headline higher than core due to seasonal adjustment of gasoline prices and higher natural gas prices resulting from colder than normal weather. Medical care services cooled from .3% to from .1%, used cars and trucks dropped from 2% to 1.2% and vehicle maintenance and insurance continue to cool from its blistering 7.3% Y/Y increase. Surprisingly, rent and owner’s equivalent rent ticked up to .3% from .2% last month despite ongoing declines in market-based measures of rents.
The CPI and PPI prints imply that PCE Core with come in at a cool .2% when it is reported at month end. We project that PCE Core will roll down to 2.4% Y/Y by the end of the first quarter which will clear the way for the Fed to cut at least 3 times this year. We believe that the market has completely mis-analyzed the impact of the Trump Administration policy by massively overestimating the inflationary impact of tariffs and deportations and completely ignoring the deflationary impacts of the 10% appreciation of the dollar.
We remain bullish on stocks and bonds with a 7,000 2025 target on the S&P 500 Index and a 3.5%-4.0% target range for the US treasury. Our number one stock idea for 2025 is long investment banks due to a likely boom in both M&A and AI related IPOs.
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