Market Recap: Biden’s Economic Legacy, Wholesale Prices Slow, Consumer Prices Mixed

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Market Recap: Biden’s Economic Legacy, Wholesale Prices Slow, Consumer Prices Mixed

SPY
S&P 500
Last week: 2.78%
YTD: 1.96%
1-year: 25.46%
DIA
Dow
Last week: 2.82%
YTD: 2.21%
1-year: 16.75%
ONEQ
Nasdaq
Last week: 2.90%
YTD: 1.76%
1-year: 29.18%
IWM
Russell 2000
Last week: 3.78%
YTD: 2.04%
1-year: 18.55%
Large Growth
Large Growth
YTD: 1.35%
1-year: 31.07%
Large Value
Large Value
YTD: 3.47%
1-year: 19.28%

Biden’s Legacy – Strong Stock Market and Economic Growth Overshadowed

The transition from Joe Biden to Donald Trump marks a pivotal moment in U.S. politics, especially given the economic context. Biden’s tenure ended with impressive job growth and GDP expansion, suggesting a robust recovery from the pandemic-induced downturn. However, persistent inflation, particularly harmful to lower-income Americans, overshadowed these achievements, leaving a complex economic legacy. Wages rose, but not enough to outpace inflation, eroding purchasing power and affecting consumer sentiment. Despite the significant increase in household net worth and a buoyant stock market, the lingering affordability issues and the growing federal deficit complicate Biden’s economic record.


Now, as Trump returns to office, he inherits an economy that is growing but faces challenges of its own. His administration will likely emphasize immigration reform, deregulation, and strengthening U.S. manufacturing. These policies aim to address the economic concerns that have emerged over the past few years, but they may also need to confront the continuing issue of inflation and its impact on American families. Trump’s approach, contrasting with Biden’s, could shift the national focus toward supply-side solutions and a more market-driven economy.


Ultimately, the political landscape is poised for a shift as Trump looks to capitalize on the economic foundation laid by the previous administration, while navigating the pressures of inflation and broader economic uncertainty.

Wholesale Prices Slow In December

The December Producer Price Index (PPI) report provided a mixed but somewhat optimistic picture of inflationary trends. The 0.2% monthly rise, which was below the anticipated 0.4%, signals that inflationary pressures are easing, though the economy is far from inflation-free. The flat core PPI suggests stability in prices excluding volatile items like food and energy, and the 3.3% annual increase in headline PPI reflects continued, albeit moderate, inflationary pressures.


The surge in goods prices, primarily driven by rising gasoline costs, indicates that energy prices are still a significant factor in inflation, while services prices showed no major movement, providing some stability in that sector.


Following this report, stock markets reacted positively, with major indices rising sharply and Treasury yields falling, signaling investor optimism about a less aggressive Fed approach in the near term. While the expectation is that the Federal Reserve will likely hold rates steady at its upcoming meeting, markets are still factoring in potential rate cuts later in the year, depending on how inflation and economic conditions evolve.


This creates a somewhat cautious but optimistic outlook for the economy, with investors banking on a slower pace of rate hikes and possible relief in the form of rate cuts, especially if inflation continues to moderate. The central question remains whether the Fed can achieve a soft landing for the economy, balancing inflation control with continued growth and stability.

Consumer Prices Remain Mixed

The December Consumer Price Index (CPI) report presents a nuanced picture of inflation, highlighting both relief in certain areas and continued pressure in others. The 0.4% monthly rise in CPI and the 2.9% annual inflation rate reflect a significant spike in energy prices, which largely drove the increase. However, excluding food and energy (core CPI), the monthly rise was more modest at 0.2%, and the annual rate was 3.2%, slightly below expectations. This suggests that while inflation is moderating in some areas, it’s not yet fully under control.


Notably, shelter prices, which are a significant component of the CPI, increased by 0.3% in December. Although this marks a smaller rise than in previous months, it is still contributing to overall inflation. The fact that shelter prices showed the smallest annual gain since early 2022 indicates some softening in housing costs, which could provide a more balanced inflation outlook moving forward.


Despite these mixed signals, the overall inflationary pressures appear to be easing somewhat, particularly in areas like core CPI and shelter, where the rate of increase is slowing. However, the surge in energy prices remains a volatile factor that could continue to drive overall inflation higher in the short term.

The CPI report, therefore, contributes to a mixed inflation outlook, with some signs of relief but also reminders that inflation is still a concern, especially in energy and housing. The Federal Reserve will likely continue to monitor these trends closely as it decides on future monetary policy.

  • Alex is a Certified Financial Planner™. He brings nearly a decade of experience working with individuals, families, and business owners. Prior to working for Base Wealth Management, Alex worked for Fidelity Investments and an independent wealth management firm in Venice, FL. Through many years of practice, he specializes in helping clients navigate their financial goals through comprehensive financial planning. He received his bachelor’s degree in economics from Texas A&M University.

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