Economic Overview - The S&P 500 has traded sideways this year, while the iShares MSCI ACWI ex US ETF has advanced about 10%, indicating a significant divergence in performance between U.S. stocks and global markets [1] - High valuations and concerns regarding President Trump's policies have led to a decrease in investor interest in U.S. stocks [1] Tariff Policy Changes - President Trump has replaced the now-illegal IEEPA tariffs with similar Section 122 tariffs, which were initially set at 10% and later increased to 15% [5][6] - The Supreme Court ruled against the IEEPA tariffs, stating that the president exceeded his authority, prompting the quick implementation of Section 122 tariffs [6] Economic Impact of Tariffs - Studies from various institutions indicate that U.S. businesses and consumers have borne approximately 90% of the costs associated with President Trump's tariffs [8] - The Congressional Budget Office (CBO) suggests that the tariffs have resulted in a lower GDP than would have occurred without them, as tariff revenue diverts funds that could have supported economic growth [9] Employment and Growth Data - In 2025, the U.S. economy added only 181,000 jobs, marking the lowest increase since 2009, excluding the pandemic [10] - Economic growth was recorded at just 2.2% in 2025, the slowest rate in a decade, excluding pandemic effects [10] - PCE inflation reached 2.9% in December 2025, the highest level since March 2024, indicating rising price pressures [10]

Core Viewpoint - President Trump has nominated Kevin Warsh as the new Fed chair, expressing a desire for an ambitious economic growth rate of 15%, which is rarely achieved outside of wartime [1][8]. Economic Growth Metrics - The president did not clarify the specific metric or timeframe for the 15% growth target, but typically, economic growth is measured as the inflation-adjusted annual rate of GDP growth [2]. - Historically, real GDP growth averages between 2%-3% annually, with double-digit growth occurring only in extreme situations, such as post-catastrophe recoveries [3]. Historical Context - The last instance of GDP growth reaching Trump's predicted level was during the reopening of businesses after COVID-19 restrictions, while the last year with growth exceeding 15% was 1943, during World War II [4]. Fed's Role and Challenges - As Fed chair, Warsh will have the ability to influence the economy through the fed funds rate, which impacts borrowing costs; however, his influence is limited as he is one of 12 voting members [7]. - The Fed can stimulate economic growth by lowering interest rates, but it must also manage its mandate to control inflation, which remains above the Fed's 2% target [6][8].

Economic Growth - The U.S. economy experienced robust growth in Q3, with real GDP increasing at an annual rate of 4.4%, up from 3.8% in Q2 and exceeding the 4.3% forecast [1] Inflation Metrics - The Core PCE Price Index rose 2.8% year-over-year in November, consistent with forecasts and slightly up from October, while the headline index also increased by 2.8% annually [2] Consumer Sentiment - The University of Michigan Consumer Sentiment Index increased by 3.5 points (6.6%) to 56.4 in January, surpassing the expected 54.0 reading, although it remains over 20% below the previous year [3] - The "current conditions" subcomponent rose for the first time in six months, and the "expectations" subcomponent increased for the third consecutive month to its highest level since July [4] Market Reactions - The S&P 500 finished the week with a loss of -0.4%, while the SPDR S&P 500 ETF Trust (SPY) also fell -0.4% [6] - The 10-year Treasury yield ended the week at 4.24%, and the 2-year note finished at 3.60% [6] Federal Reserve Outlook - The CME FedWatch Tool indicates a 97% chance that the Federal Reserve will maintain current interest rates at the upcoming meeting, with markets anticipating two 25 basis point cuts in 2026 [7] Upcoming Economic Data - Key economic data releases include Durable Goods Orders, Consumer Confidence Index, and the FOMC Meeting scheduled for the week ahead [8][9]

Economic Performance - The S&P 500 and Nasdaq Composite have risen 15% and 19% respectively since President Trump assumed office for a second term [2] - U.S. growth has been trending up since Trump's inauguration, with annualized growth of real GDP reported at 4.3% in the third quarter [6][7] Investment Drivers - Rising investments in artificial intelligence (AI) and infrastructure are identified as the biggest catalysts fueling the current bull market [3] - Treasury Secretary Scott Bessent indicated that growth could "surprise on the upside," suggesting a nominal GDP rate of 7% to 8% [7] Economic Indicators - Gross Domestic Product (GDP) is critical for determining fiscal and monetary policy as well as corporate budgeting, reflecting a larger tax base due to increased sales and wages [5] - The distinction between nominal GDP and real GDP is emphasized, as nominal GDP may reflect growth due to higher prices rather than actual economic expansion [8]

Core Insights - Mortgage rates remained stable this week, with the 30-year fixed rate averaging 6.30% [1] - The current mortgage rates for various loan types show slight changes compared to previous weeks and years, with the 30-year fixed rate down from 6.94% a year ago [2] - The average total of 0.34 discount and origination points for 30-year fixed mortgages indicates a competitive lending environment [2] Current Mortgage Rates - The 30-year fixed mortgage rate is currently at 6.30%, slightly down from 6.32% four weeks ago and significantly lower than 6.94% one year ago [2] - The 15-year fixed mortgage rate remains unchanged at 5.57%, while the 30-year jumbo mortgage rate is at 6.49%, up from 6.47% four weeks ago [2] Economic Context - The U.S. economy expanded by 4.3% in the summer months, which may influence mortgage rates as good economic news typically leads to higher rates [5] - The Mortgage Bankers Association anticipates that despite some expectations for rates to dip below 6% in 2026, the combination of a growing economy and persistent inflation will keep rates around 6.4% for the year [6] Housing Market Outlook - Increased housing inventory and stabilizing home prices create a favorable environment for potential buyers and those looking to refinance [4] - The national median family income for 2025 is projected at $104,200, with the median home price at $409,200, leading to a monthly payment of $2,026, which constitutes about 23% of a typical family's income [3]

Economic Growth Overview - The U.S. economy is projected to have grown at an annualized rate of 3.2% in the third quarter, a decrease from 3.8% in the second quarter but above the average of 2.6% since Q3 2021 [2] - The report on Gross Domestic Product (GDP) was delayed due to a government shutdown, which affected the release of key economic indicators [3] Consumer Spending and Economic Drivers - Consumer spending is identified as the main driver of economic growth, with economists noting robust momentum in the third quarter [6][7] - Despite strong consumer spending, concerns arise regarding a potential slowdown due to rising unemployment rates, which have reached their highest level since the pandemic [7][8] Impact of Tariffs on GDP - Recent GDP measurements have been distorted by changes in trade policies, particularly tariffs, which have affected import levels and consequently GDP calculations [5] - The surge in imports prior to the implementation of tariffs negatively impacted GDP, but a subsequent decline in imports helped reverse this trend in the second quarter [5]

Economic Data Overview - The week ahead includes the release of key economic reports, notably the initial estimate of third-quarter GDP, which was delayed due to a government shutdown [3][4] - The Bureau of Economic Analysis will only provide two GDP reports for Q3 instead of the usual three, with the final report scheduled for January 22 [4] Market Schedule - Stock markets will close early at 1 p.m. EST on December 24 and remain closed on December 25 for the Christmas holiday [7][10] - Bond markets will close at 2 p.m. EST on December 24 [10] Key Reports to Watch - Reports scheduled for release include durable goods orders for October, industrial production, and capacity utilization data for October and November, along with the December consumer confidence survey [5][10] - Weekly jobless claims data will also be highlighted following an increase in unemployment reported for November [6][10]

Core Insights - The ongoing government shutdown has delayed the release of the Commerce Department's initial estimate of third-quarter GDP, although other data sources indicate solid economic growth during the quarter [1][3] - The Federal Reserve Bank of Atlanta's GDPNow model estimates third-quarter GDP growth at 3.9%, while the New York Fed's nowcast estimates it at 2.35% [6][9] - The lack of official GDP data due to the shutdown is creating uncertainty in economic assessments, with Federal Reserve officials expressing concerns about the impact on their economic outlook [10] Economic Growth Estimates - The Atlanta Fed's GDPNow model provides a "nowcast" of real GDP growth, estimating a 3.9% growth rate for the third quarter [6] - The New York Fed's staff nowcast estimates third-quarter GDP growth at 2.35%, with a 50% probability range between 1.32% and 3.41% [9] - Incorporating these estimates, the overall GDP growth for the first three quarters of the year could be around 2.4% based on the Atlanta Fed's estimate, or 1.88% based on the New York Fed's estimate [12][13] Impact of Government Shutdown - The government shutdown has led to the Bureau of Labor Statistics missing the September jobs report, although it temporarily returned workers to publish the consumer price index due to its importance for Social Security adjustments [2] - The uncertainty surrounding the duration of the government shutdown is affecting the Federal Reserve's ability to assess the economy accurately, as noted by Fed Chair Powell [10]

Core Insights - Gross domestic product (GDP) increased by 1.2% in the July-September period compared to the previous quarter, indicating economic growth driven by government stimulus and resilient exports despite facing tariff challenges [1] Economic Performance - The 1.2% rise in GDP reflects a positive economic trend, suggesting effective government intervention and strong export performance [1]

Market Outlook - Piper Sandler expects improving EPS breadth to take over after three years of PE expansion [2] - The market has priced in very little macro risk, making further multiple expansion difficult, earnings will need to drive growth [3] - Stable to slightly lower interest rates over the last two and a half years provide tailwinds to the economy [5] - Globally, there have been approximately 95 rate cuts in the last several quarters [5] - Analyst estimates are starting to broaden out, and housing data is stabilizing to slightly improve [6] - Rising small cap and midcap earnings estimates are observed for the first time in three years [7] Economic Indicators - The current backdrop is considered a Goldilocks scenario, with a soft enough labor market to allow gradual rate cuts by the Federal Reserve [8] - Broadening of earnings estimates has been strong across mid, small, and large caps in the last two months [10] - Green shoots are appearing in housing data, with purchase applications and refi activity continuing to grind higher [10] - The Fed funds rate is 125 basis points lower and is expected to be another quarter point lower by year end [11]