By Mike Dolan Feb 12 - What matters in U.S. and global markets today By Mike Dolan, Editor-At-Large, Finance and Markets World stock markets have been pretty buoyant as they digest the robust U.S. January employment report and dampened Federal Reserve rate cut expectations. While the downward revisions to ‌2025 payrolls underscore last year’s subdued hiring, the 130,000 payroll gain last month was almost twice the 70,000 forecast. The unemployment rate also unexpectedly ‌fell to 4.3% - even as labor f ...

Core Insights - Americans collectively owe $1.233 trillion in credit card debt, with nearly half of all cardholders carrying balances month to month at an average APR of 22.83% [2][7] - Despite recent Federal Reserve rate cuts, borrowers face a persistent financial squeeze as credit card issuers maintain a consistent markup, meaning lower Fed rates do not provide meaningful relief for consumers [2][3] Credit Card Interest Structure - The Federal Reserve cut its benchmark rate to 3.72% in December, but credit card borrowers have seen minimal benefit due to a consistent 15 to 18 percentage point markup over the prime rate, which is about 3 percentage points above the Fed's rate [3][4] - Credit card interest rates are typically variable and tied to the prime rate, which follows Fed policy adjustments, but the issuer's margin remains constant, keeping absolute rates elevated [4] Debt Accumulation and Payment Dynamics - Daily compounding makes credit card debt particularly expensive; a typical $5,000 balance accumulates over $3 in new interest daily, leading to accelerated debt growth [5][7] - Minimum payments create a debt trap, where the majority of payments go to interest rather than principal, causing the balance to decline slowly and total interest paid over time to exceed the original amount borrowed [6][7]

Interest Rate Predictions - The Federal Reserve cut the federal funds rate three times in 2025, totaling 75 basis points, which was more aggressive than initial market expectations [3] - For 2026, the median expectation is for an additional 50 basis points of rate cuts, typically occurring at two of the eight meetings throughout the year [4] - There is a belief that the market is underestimating the potential for more aggressive rate cuts, with a prediction of four or more cuts being more likely than the current 11% market pricing suggests [6] Economic Conditions - Economic uncertainty and pressures on the job market are expected to persist, influencing the Fed's decision-making [5] - The 10-year Treasury yield is currently at 4.19%, which is higher than mid-2024 levels, but a significant drop to below 3.5% is predicted by the end of 2026 [6] - Predictions indicate that mortgage rates, currently averaging around 6.2%, could see significant relief, potentially falling to 5.5% by the end of 2026 [6]

Core Insights - Deposit account rates are declining, but competitive returns on certificates of deposit (CDs) can still be locked in, with the best CDs offering rates above 4% [1] Group 1: Current CD Rates - The best short-term CDs (six to 12 months) currently offer rates around 4% to 4.5% APY, with Marcus by Goldman Sachs offering the highest rate of 4% APY on its 1-year CD [2] - Historical trends show that average one-year CD rates were around 1% APY by 2009, following the financial crisis, with five-year CDs yielding less than 2% APY [2] - The trend of falling CD rates continued into the 2010s, with average rates on 6-month CDs dropping to about 0.1% APY by 2013 [3] Group 2: Economic Influences on CD Rates - The Federal Reserve's policies, particularly the decision to keep benchmark interest rates near zero, led to very low CD rates during the 2010s [3] - Between 2015 and 2018, the Fed's gradual rate increases resulted in a slight improvement in CD rates, marking the end of nearly a decade of ultra-low rates [4] - Following the COVID-19 pandemic, the Fed hiked rates 11 times between March 2022 and July 2023, leading to higher APYs on savings products, including CDs [5] Group 3: Future Projections and Trends - As of September 2024, the Fed began cutting the federal funds rate, resulting in a steady decline in CD rates from their peak, although they remain high by historical standards [6] - Traditionally, longer-term CDs offered higher interest rates, but currently, the highest average CD rate is for a 12-month term, indicating a flattening or inversion of the yield curve [7] Group 4: Choosing the Best CD - When selecting a CD, factors such as the term length, type of financial institution, account terms, and inflation considerations are crucial for maximizing returns [8] - Online banks often provide higher interest rates than traditional banks due to lower overhead costs, but it is essential to ensure they are FDIC-insured [8] - Understanding the terms of the CD, including maturity dates and withdrawal penalties, is vital for making informed investment decisions [8]

Core Insights - Precious metals, particularly silver, have reached record highs due to softer-than-expected U.S. inflation data and rising geopolitical risks [1][2] - Silver futures increased by 4.2% to $90.02 an ounce, with an earlier session high of $91.37, driven by expectations of Federal Reserve rate cuts [2] - Ongoing geopolitical tensions and political pressure on the Federal Reserve are expected to support precious metals, with potential for new milestones in the coming months [3] Group 1 - Silver broke above $90 an ounce, reaching a high of $91.37 earlier in the session [2] - New York gold futures rose to $4,642.60 an ounce, after hitting a record of $4,647.60 [1] - Traders are optimistic about Federal Reserve rate cuts by midyear, benefiting nonyielding assets like precious metals [2] Group 2 - Persistent geopolitical tensions and political pressure on the Fed are supporting precious metals [3] - A U.S. section 232 investigation could lead to tariffs on silver, potentially tightening available inventories [3] - Analysts suggest that silver and gold may reach new milestones in the coming months due to these factors [3]

Core Insights - Mortgage rates for 30-year fixed mortgages have decreased to 6.23%, the lowest level since early October 2024, providing relief for homebuyers after a year of elevated rates [2][3] - The decline in mortgage rates follows a period where rates exceeded 7%, indicating a gradual pullback in borrowing costs [3] Market Implications - The current mortgage rate environment presents a dilemma for buyers: whether to lock in the current rates or wait for potentially better rates, which can be unpredictable [4][10] - Economic factors influencing mortgage rates include inflation data, investor expectations, and bond market movements, rather than solely Federal Reserve rate cuts [7][8] Buyer Considerations - Experts recommend that buyers focus on personal financial readiness rather than attempting to time the market for the lowest rates [11] - Locking in a mortgage rate now does not preclude future refinancing opportunities if rates decrease further [13]

Core Insights - Money market funds attracted $935 billion in new assets in the previous year, exceeding expectations and demonstrating resilience against anticipated outflows due to Federal Reserve rate cuts [1] - Continued growth in money market funds is projected, with an additional $500 billion in inflows expected by the end of 2026, pushing total assets beyond $8.6 trillion [1] Market Trends - Money market funds are expected to remain essential for financial advisors, even if interest rates decline, serving various purposes such as emergency reserves and volatility buffers [2] - The popularity of money market funds surged as the Federal Reserve began raising rates in 2022, peaking in mid-2023 with rates between 5.25% and 5.5% [3] - Current federal funds rates are between 3.5% and 3.75%, maintaining the attractiveness of money market funds for yield-seeking investors [3] Yield Comparisons - As of the latest data, the 7-day yields for the Vanguard Federal Money Market Fund and the Fidelity Government Money Market Fund were 3.69% and 3.43%, respectively, while the Crane 100 Money Fund Index stood at 3.58% [3] - Yields on money market funds remain competitive compared to traditional bank deposit products, which are less attractive [4] Investor Composition - Retail investors accounted for 34% of total money market inflows, while institutional investors represented 64% [5] - Money market fund yields have exceeded 3% only twice in the last two decades, with a significant portion of that time yielding effectively zero due to the Federal Reserve's lower bound rates [5]

Core Viewpoint - Wall Street analysts are optimistic about the S&P 500's performance in 2026, but historical trends suggest that these forecasts may be overly optimistic and could lead to significant market corrections [4][11][21] Market Performance - Major stock indexes, including the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite, have seen substantial gains in 2025, with increases of 14%, 17%, and 21% respectively [2] - The S&P 500 is expected to rise further in 2026, with predictions ranging from a conservative estimate of 7,100 (3% increase) to a more optimistic target of 8,100 (18% increase) [7][8] Historical Context - The S&P 500 has historically risen in approximately 70% of all years since 1926, with no rolling 20-year period showing a negative total return [7] - The current Shiller Price-to-Earnings (P/E) Ratio for the S&P 500 is at 40.40, significantly above the historical average of 17.3, indicating a potentially overvalued market [14][15] Economic Indicators - The Federal Reserve's recent rate cuts have led to increased borrowing, which may stimulate hiring and corporate innovation, contributing to market optimism [9] - However, historical data shows that high valuations often precede significant market downturns, as seen in previous bear markets [16][20] Technological Trends - The rise of artificial intelligence and quantum computing presents significant long-term opportunities, but these technologies are still in early stages and may take time to mature [10][19] - Historical patterns indicate that while technological innovations can drive growth, they often require years for businesses to fully optimize and capitalize on [18][19]

Core Insights - The U.S. housing market is facing significant challenges, and recent Federal Reserve rate cuts are unlikely to improve affordability [2] - A structural housing shortage is identified as a key issue in the U.S. housing market, with a need for more housing units [3] - The Federal Reserve's previous purchases of mortgage-backed securities during the pandemic may have contributed to overheating the housing market, though the extent is uncertain [3] Economic Context - The U.S. labor market has softened, with the latest unemployment rate at 4.4%, which is above the cycle low of 3.4% recorded in April 2023 [4] - The Federal Reserve is transitioning from a restrictive to a neutral policy stance, indicated by several cuts to short-term rates [4] - Long-term yields and mortgage rates have decreased from their cycle highs over the past year [4]

Group 1 - Gold prices are set for a weekly gain following a quarter-point interest-rate cut by the Federal Reserve, with futures rising 0.2% to $4,322.20 per troy ounce and up 1.9% for the week [1] - Silver futures have reached a record high of $64 per ounce, driven by speculative momentum related to supply deficits [1] Group 2 - Analysts from Sucden Financial indicate that gold's price movements are closely tied to the broader policy outlook and real yields, suggesting that gold will serve as a more stable indicator of macroeconomic sentiment [2] - The potential for gold prices to rise further may be limited unless there is a significant weakening of the dollar [2]