Inflation remains a hot topic, directly impacting everything from your grocery bill to interest rates. As of the latest data, two key inflation gauges — the Personal Consumption Expenditures (PCE) Price Index and the Consumer Price Index (CPI) — show that prices are still above the Federal Reserve's 2% target, with the core PCE at 2.8% and core CPI at 2.6%. Note: PCE data is through November 2025 and CPI data is through December 2025. The Fed's Preferred Inflation Gauge The Fed is on record as using PCE dat ...

Economic Overview - The U.S. economy shows signs of cooling inflation and resilient consumer activity, with consumer price growth at a six-month low in December and retail sales rebounding [1] - Investor sentiment is high, indicated by record-high margin debt levels, suggesting increased market risk-taking [1] Inflation Dynamics - Consumer inflation decreased for the second consecutive month in December, with the Consumer Price Index (CPI) at 2.68%, down from 2.74% in November, and a monthly increase of 0.3% [2] - Core inflation slightly increased from 2.63% in November to 2.64% in December, with a monthly rise of 0.2% [2] - Conversely, the Producer Price Index (PPI) rose unexpectedly to 2.95% in November, up from 2.80% in October, indicating potential future consumer inflation [3] Consumer Spending - Retail sales increased by 0.6% in November, surpassing the 0.5% forecast, marking a recovery from a revised decline of -0.1% in October [4] - Core sales, excluding autos, rose by 0.5%, exceeding the projected 0.4% growth, although control purchases rose only 0.3%, below the 0.4% forecast [5] Margin Debt Insights - Margin debt reached a record high of $1.23 trillion in December, marking an eighth consecutive monthly increase and a more than 30% surge over the past year [6][7] - High margin debt levels indicate strong investor confidence but also suggest increased market volatility and risk-taking behavior [7] Market Reactions - The S&P 500 reached a record high before ending the week with a 0.4% loss, while the SPDR S&P 500 ETF Trust (SPY) fell by 0.3% [8] - The S&P Equal Weight Index increased by 0.7% from the previous week [8] Treasury Yields and Fed Outlook - The 10-year Treasury yield finished at 4.24%, and the 2-year note at 3.59%, with a 95% chance that the Fed will hold rates steady at the upcoming meeting [9]

Core Insights - The article discusses the macroeconomic factors influencing advisors and investors in 2026, particularly focusing on the Federal Reserve's independence and inflation concerns [2][3]. Federal Reserve Developments - The Department of Justice has subpoenaed the Federal Reserve, raising concerns about its independence, which could impact market dynamics [3][4]. - Market reactions have shown initial pullbacks following the news, with expectations that advisors and traders will adopt a wait-and-see approach until more clarity emerges [5]. - There is speculation about whether Jerome Powell will remain as a governor until 2028, highlighting the uncertainty surrounding leadership at the Fed [6]. Inflation Concerns - There are doubts regarding the accuracy of the Consumer Price Index (CPI) due to outdated methods used by the Bureau of Labor Statistics, which may misrepresent the true inflation landscape [7][8]. - Advisors and investors are currently underexposed to commodities, particularly gold, which presents opportunities for hedging against inflation and achieving long-term gains [9]. Investment Opportunities - The WisdomTree Japan Opportunities Fund (OPPJ) is highlighted as a compelling investment choice for 2026, as Japan's economy shows signs of improvement due to favorable fiscal policies and moderate inflation [10][11]. - OPPJ targets Japanese companies with strong growth potential, including those held by Berkshire Hathaway and those with high shareholder yields, providing a diversified investment approach [12]. - The fund is positioned as a strategic option for navigating the uncertainties of the U.S. markets in 2026, encouraging advisors to remain adaptable [13].

Economic Indicators - The November Producer Price Index (PPI) showed a month-over-month increase of +0.2%, up from a revised +0.1% in October, but below the consensus estimate of +0.3% [2] - The core PPI, excluding food and energy, remained unchanged at 0.0% for November, down from a revised +0.3% in October [3] - Year-over-year PPI increased to +3.0% from a revised +2.8%, marking the first time it has reached a "3-handle" since September [4] - The core PPI year-over-year also reached +3.0%, 10 basis points higher than the unchanged +2.9% from October [4] - Excluding food, energy, and trade, the year-over-year PPI rose to +3.5%, the highest since March of the previous year [4][5] Retail Sales - U.S. Retail Sales for November reported a headline increase of +0.6%, surpassing the estimated +0.4% and a significant rise from the revised -0.1% in the prior month [6] - Excluding autos, Retail Sales still showed a strong increase of +0.5%, more than double the revised +0.2% from October [6] - Core Retail Sales, excluding autos and gasoline, were +0.4% for the month, down from +0.6% in the previous report, indicating continued consumer spending [7] Bank Earnings - Major banks reported Q4 earnings, with Citigroup, Bank of America, and Wells Fargo all exceeding bottom-line estimates: Citigroup at +$1.81 per share, Bank of America at $0.98, and Wells Fargo at $1.76 [8] - Citigroup benefited from reduced provisions for troubled loans, while Wells Fargo experienced a revenue miss due to higher-than-expected severance costs [9] - Bank of America reported an increase in Net Interest Income for the quarter, with both BofA and Citi having only missed bottom-line estimates once in the past five years [9]

Group 1 - The core viewpoint of the articles indicates that U.S. consumer prices are expected to accelerate in December due to the reversal of factors that had previously suppressed inflation during the government shutdown in November [1] - The December Consumer Price Index (CPI) is projected to rise by 0.3%, driven by increases in food and energy prices, particularly electricity costs related to data centers [1] - The core CPI, excluding volatile food and energy prices, is anticipated to increase by 0.3% in December, with a year-over-year growth of 2.7%, slightly up from 2.6% in November [1] Group 2 - The government shutdown, lasting 43 days, disrupted the collection of price data for October, leading to the use of estimation methods for the November CPI report, particularly affecting rental data [2] - Despite the successful collection of price data in November, the data was skewed due to holiday discount promotions, which may have distorted the rental and goods price indicators [2] - Economists expect that the impact of tariffs imposed by the Trump administration is gradually being reflected in inflation, with consumer prices expected to rise significantly in the coming months [3] Group 3 - The current high inflation rate is predicted to weaken political support for President Trump, potentially becoming a significant political issue by 2026 as he and his party strive to maintain control of Congress [4] - Various goods prices, including new cars, furniture, and clothing, are expected to see accelerated increases, while the rental market may continue to show weakness [4] - The relationship between Federal Reserve Chairman Jerome Powell and President Trump has become strained, leading economists to believe that interest rates will not be lowered before Powell's term ends in May [4][5]

Inflation Data Overview - The Consumer Price Index (CPI) rose by 2.7% in November, lower than Wall Street's expectation of 3.1% [2] - Core inflation, excluding food and energy prices, was reported at 2.6%, compared to estimates of 3% [2] - Over the two-month period since September, both headline and core CPI increased by only 0.2% [3] Impact of Government Shutdown - The recent inflation data may not significantly alter the Federal Reserve's outlook due to data collection disruptions caused by the government shutdown [1][4] - The shutdown halted much of the price data collection by the Bureau of Labor Statistics, leading to skepticism about the reliability of the current inflation figures [2][4] Economic Perspectives - Economists view the latest inflation reading as progress towards the Federal Reserve's 2% inflation target, despite still being above the target [5] - The Fed is in a "wait-and-see" mode, with the latest data potentially opening the door for additional rate cuts [6] Sector-Specific Insights - A decline in rents contributed to the overall decrease in inflation, while core goods prices rose by 1.4% due to tariffs [7] - Services inflation, excluding energy prices, increased by 3%, down from 3.5% since September, indicating a trend that the Fed is closely monitoring [7] - Fed Governor Stephen Miran supports the view that lower rents can lead to reduced inflation, which may mitigate the impact of tariffs [8]

Economic Indicators - The Consumer Price Index (CPI) for November is expected to increase by 0.3 percent, with the release scheduled for 8:30 am ET [3] - Jobless Claims for the week are anticipated to be 225K, down from 236K in the prior week [3] - The Philadelphia Fed Manufacturing Index for December is forecasted to rise by 2.2, following a decrease of 1.7 in November [3] - The third quarter Current Account deficit was $251.3 billion in the prior quarter [4] - E-Commerce Retail Sales for the third quarter showed a 1.4 percent increase in the previous quarter [4] - Leading Indicators for November are expected to be down 0.3 percent from the prior month [5] - The EIA's Natural Gas Report indicated a decrease of 177 bcf in gas stock in the prior week [5] Market Performance - Asian shares mostly finished lower, with the Shanghai Composite index up by 0.16 percent to 3,876.37 and Hong Kong's Hang Seng index slightly higher at 25,498.13 [5] - Japanese markets hit three-week lows, with the Nikkei average falling 1.03 percent to 49,001.50 and the broader Topix index down 0.37 percent to 3,356.89 [6] - European shares are trading mostly higher, with the CAC 40 Index up 17.23 points or 0.21 percent, the DAX gaining 62.05 points or 0.26 percent, and the FTSE 100 Index progressing 1.52 points or 0.02 percent [6][7] - The Swiss Market Index added 19.19 points or 0.15 percent, while the Euro Stoxx 50 Index increased by 22.41 points or 0.39 percent [7] Futures Market - As of 7:30 am ET, Dow futures were up 85.00 points, S&P 500 futures added 26.75 points, and Nasdaq 100 futures progressed 196.25 points [2]

Core Insights - Inflation has significantly increased, with the Consumer Price Index (CPI) rising by 3% in September, up from 2.3% in April, indicating a persistent upward trend in prices [2][3] - The effective tariff rate has reached 16.8%, the highest since 1935, contributing to increased import prices and overall inflation [6] - Popular brands and retailers have responded to rising costs by reducing promotions and selectively increasing prices, leading to consumers paying higher prices for goods [7] Economic Context - Many Americans are facing tough spending choices due to rising prices, leading to delays in discretionary purchases to prioritize essentials [2] - The job market is weakening, contrasting with the inflationary pressures, which complicates the economic landscape [2] - The upcoming Bureau of Labor Statistics' November CPI report is highly anticipated, as it may indicate whether inflation is slowing down [3][5] Retail and Brand Impact - Major retailers like Walmart and AutoZone have adjusted their pricing strategies, resulting in consumers often paying full or higher prices for products [7] - Harvard's Pricing Lab reports that average prices are currently 6.68% higher than they would have been without the impact of tariffs, highlighting the significant effect of tariffs on consumer pricing [8]

Core Insights - The U.S. Bureau of Labor Statistics (BLS) has canceled the release of the October consumer price index (CPI), impacting the Federal Reserve's ability to assess inflation data before its interest rate decision on December 10 [1][2] - The cancellation is due to the government shutdown, which hindered the BLS's ability to retroactively collect necessary survey data [2][3] - The release of November's CPI data has been rescheduled to December 18, after the Fed's decision [2] Data Collection Challenges - BLS data collectors utilize various methods, including personal visits and phone calls, which were not feasible during the shutdown [3] - Online data and household surveys also contributed to the difficulties in retroactively collecting information [3] Impact on Federal Reserve - The Commerce Department's Bureau of Economic Analysis has also indicated that the personal consumption expenditures (PCE) price index, another key inflation measure, will be rescheduled without a firm date [4] - Fed officials have expressed concerns about operating in a "data fog," complicating monetary policy formulation [5] - Fed Chair Jerome Powell emphasized the need for caution in decision-making during this period of uncertainty [6] - Despite the data challenges, some Fed officials believe there is still sufficient information to make informed decisions [7]

Core Viewpoint - The U.S. is facing a significant disruption in its inflation data reporting due to government shutdowns, leading to a lack of Consumer Price Index (CPI) data for the first time in over a century, which complicates economic planning and market operations [1][3]. Group 1: Impact on Economic Planning - The absence of timely inflation data hampers household budgeting, corporate planning, and investor decision-making, resulting in a market operating on unreliable information [4]. - Economists and traders are now forced to navigate without the CPI, which has historically been a critical measure of inflation, leading to improvisation in economic assessments [2][3]. Group 2: Market Disruption - The lack of CPI data has led to the emergence of two fallback systems for inflation measurement, which are inconsistent: the U.S. Treasury assumes inflation will continue at the previous year's average, while ISDA has frozen inflation at last October's level of 3.01% [5]. - This discrepancy has created a distorted market environment, with Barclays estimating a breakeven rate of 3.05% for TIPS compared to just 1.78% for inflation swaps, indicating a significant divergence that could disrupt traditional pricing models [6]. Group 3: Federal Reserve Actions - The Federal Reserve has begun cutting interest rates, bringing the target range to 4.00-4.25% as of September, amidst concerns over economic slowdown and employment stability [7]. - Despite the Fed's easing measures, inflation has shown signs of re-acceleration, complicating the economic landscape and posing risks to bond real yields and equity valuations [7].