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@theMarket: Higher Inflation Signals No More Rate Cuts

By Bill SchmickiBerkshires columnist
For the fourth straight month, the Consumer Price Index registered higher inflation. That has dashed any hope that the U.S. central bank would loosen momentary policy further in the months ahead. And now the country faces even higher prices if tariffs go into effect.
 
The most recent University of Michigan survey of consumers indicated that inflation expectations for the next year increased to 4.3 percent in February. That is one percentage point higher than January and the highest since November 2023.
 
Wednesday's Consumer Price Index (CPI) data for January increased 3 percent over the prior year and 0.5 percent over the previous month. That surprised markets but came in spot-on with my forecast. As readers are aware, I have been warning investors since October that inflation was climbing, and it has done so for the last four months.
 
While a stunned Wall Street pointed to seasonal factors as the culprit, we all know that is a load of bull dinky. The latest inflation numbers were higher in almost everything: autos, insurance, drugs, rent, housing, education restaurants, groceries — the list goes on. On Thursday the Producer Price Index (PPI) echoed the increases in the CPI with  U.S. factory gate prices rising 0.4 percent month over month.
 
Jerome Powell, chairman of the Federal Reserve Bank who was testifying before the House as the numbers were announced, admitted that "we're close but not there on inflation." He had already advised the market not to expect rate cuts and reiterated that "we want to keep policy restrictive for now."
 
With no help from the Fed, where does that leave the markets? Waiting for Donald Trump's tariff onslaught. There are relatively few in the financial markets who believe that tariffs will not add fuel to the inflation fire. Since the election, even the president and his cabinet have admitted that Americans will feel "pain" in the short term from his policies.
 
It may be why he did not implement reciprocal tariffs on foreign nations on Thursday. Instead, he signed a memorandum to "review" such tariffs. That gives him time to negotiate with our trading partners without adding tariff pressure to the inflation rate.
 
Critics also say government spending has been a big part of U.S. economic growth. If you add up lost federal jobs, declines in immigrant labor, and the fallout from the reduction in the size of government overall, the impact on the economy will result in a period of slower growth. In which case, my forecast of a bout of stagflation will prove accurate.
 
However, before you run for the hills, there may be some silver linings in these storm clouds. Peace in the Middle East and between Ukraine and Russia would go a long way in reducing the price of oil. And oil, as you know, is a big factor in the inflation equation. Energy prices have declined for several weeks, and I expect that to continue. It is one reason I see a decline in the CPI for next month.
 
I also believe Trump's tariff strategy is a means to an end and not a permanent fixture in the global economic landscape. He was elected primarily to solve inflation and while he can still blame this month's spike in inflation on Biden, he can't do that forever.
 
Looking back through history, voters in populist times have a short fuse. They expect politician's promises to be kept, and soon, especially when it comes to bread-and-butter issues like groceries. The pressure to succeed in a trade war needs to be weighed against the damage it causes on the inflation front.    
 
And yes, we may see a dip in economic growth because of reduced spending and increased efficiency throughout the government but it should also put a dent in the deficit and hopefully reduce the country's debt load.
 
The stock market appears to have taken the hotter inflation news in stride. However, I think much of the gains this week had more to do with the delay in reciprocal tariffs rather than inflation fears. Was it an accident or leaked information on tariffs that turned the averages around on Wednesday as they plummeted after the CPI print? The S&P 500 Index climbed further on Thursday completely ignoring the hotter PPI.
 
In any case, I have repeatedly warned readers not to tariff trade. President Trump has a long history of using the media to broadcast one intention while doing the exact opposite behind the scenes. My buy-the-dip strategy over the last few weeks seems to be paying off as has my recommendation to buy China and precious metals. Volatility will remain the game but, I am looking for new highs in the days ahead. 
 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.

 

     

@theMarket: Turmoil Keeps Investors on Their Toes

By Bill SchmickiBerkshires columnist
Two Mondays in a row, investors have had an opportunity to buy the dip in the stock market. In February there may be even more chances to do so depending on geopolitical developments.
 
For the source of much of this week's volatility, one need look no further than the White House. The number of executive orders has ramped up further. On-again, off-again tariff talks sent traders into despair, and then giddiness.
 
In the few hours between daily press conferences and announcements, markets held their breath with one finger on the buy button and the other ready to sell. If you throw in geopolitical news on topics such as Gaza, Greenland, Panama, Iran, Ukraine, and more, it is no wonder that the currency, bond, and commodity markets are churning as rapidly as the stock market.
 
Tariff fears last weekend saw stock futures on Sunday night swoon. The small-cap Russell 2000 Index futures were down 4 percent at one point. The same thing occurred the previous Sunday night when DeepSeek, the Chinese AI company, triggered a steep decline in technology and other index futures that carried into the next day's trading. But the markets rebounded quickly thanks to individual investors at the vanguard of the dip buying.
 
"Buying the dip" is alive and well among the retail crowd. On Monday, they purchased over $4 billion worth of stock options and equity. There is an entirely new generation of younger traders, forged during the COVID-19 decline in the markets, who have emerged with a different perspective on investing. 
 
Years of easy money by the Federal Reserve Bank and bucketloads of government spending have taught these investors that buying pullbacks was the way to go. Fundamentals matter less and momentum much more. Rapid rebounds in stock prices have encouraged this practice. Combined with what they call the "Trump Pump," animal spirits are lending even more volatility to the markets.
 
I have tuned out much of the political noise since the election and have concentrated instead on the economy. Here is what I am seeing.
 
The dollar is peaking because the threat of tariffs is on hold for now (except for the 10 percent tariff in China). The weaker dollar has driven down bond yields and that combination has been great for gold. Gold is reaching new highs daily. At the same time, the economy seems to be softening a wee bit while inflation is rising a tad.
 
Friday's non-farm payroll report was weaker than expected raising fears that employment is falling. I am expecting inflation to be above 3 percent year over year when the January data is released. That situation is creating a mild form of stagflation, something I predicted would happen this year, but it won't last long.
 
I expect February's inflation will decelerate to 2.85 percent based on the decline in energy we see today, while the economy continues to slow. Lower oil prices will help ease inflation if it continues to fall, which is part of the president's game plan. At the same time, our new U.S. Treasury Secretary Scott Bessent, a successful hedge fund manager, has an entirely different private-sector approach to inflation, interest rates, and economic growth.
 
The wild cards, however, are still unanswered. How will the next round of tariff threats play out? Will China and the U.S. make a deal? Is the European Union next on the list of Trump tariff threats? Do Mexico and Canada come back for a second round of tariffs?
 
I wish I had the answers, but I don't. What is clear is that the financial markets do not like uncertainty. It tends to create volatility of the kind we have been experiencing thus far in 2025. That should continue. The days of straight-up are over for the time being. Instead, we should experience ups and downs for some time. Despite that, I remain positive on the markets so buy the dips. 
 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.

 

     

@theMarket: A Roller-Coaster Week in the Markets

By Bill SchmickiBerkshires columnist
As January ended, the pace of activity across global financial markets had traders lurching from one event to another. If this is a prelude to what investors can expect from 2025, fasten your seatbelts because this could be a bumpy ride.
 
Monday opened with a huge move down led by technology stocks. The trigger for the decline was DeepSeek, a small, little-known Chinese private company that announced a breakthrough in artificial intelligence. It created a ChatGPT-like AI model with all the capabilities of companies like OpenAI, Google, and Microsoft but at a fraction of the cost.
 
The company claims it has spent just $5.6 million on computing power for its base model. This compares with the leading companies in the U.S., which have already spent billions of dollars in developing their AI technologies and billions more that they plan to spend.
 
The U.S. semiconductor company that supplies the most advanced chips to fuel the coming AI generation, Nvidia, plummeted and took the NASDAQ down by 3.1 percent.
 
As the week progressed, American analysts and corporate AI CEOs rushed to assure investors that this was not the end of U.S. AI. In fact, the breakthrough simply meant that artificial intelligence could now be implemented faster while penetrating deeper into a whole host of industries with less cost and less use of energy.
 
And while the markets were wrestling with this shockwave, Washington was generating its own brand of turbulence. The last 10 days have seen a flurry of executive orders from the White House. Orders to freeze spending (later reversed), buyouts for federal employees, declaring a national energy emergency, and tariff threats were just some of the memorandums, proclamations, and executive orders that have kept markets and corporations working overtime to digest.
 
As the Trump administration's immigration deportation begins to gather speed, videos of empty construction sites, farm fields, factories, and warehouses are being posted on social media. They supposedly claim that illegal immigrants are hiding and staying away from work sites amid the government's crackdown on illegal immigrants.
 
Whether disinformation or fact, given the sky-high prices at the grocery store, some consumers see this as another consequence of government intervention.
 
Switching gears, the Federal Open Market Committee Meeting held on Wednesday decided to keep interest rates on pause. As usual, Chairman Jerome Powell  said the Fed continued to be "data dependent." He acknowledged that the new administration's fiscal policies would impact the economy, but it was too soon to say how.
 
Beyond all these events, markets are awaiting President Trump's tariff decisions, which are expected this weekend. He has said that Canada and Mexico could be the first countries targeted with 25 percent across-the-board tariffs unless they showed substantial progress on curbing immigration at the borders and a reduction in drug smuggling into the U.S. 
 
The facts are that no one knows what the president will do until he does it. Investors could wake up on Monday morning with tariffs levied on Mexico and Canada or not. Given this backdrop, there is little value in trying to predict market direction on fundamentals such as earnings, revenues, etc.
 
I will say that earnings so far this quarter have been good. S&P 500 companies' earnings are up on average 13 percent. Technology companies even more, while small-cap companies in an important reversal are up 13 percent. It also appears, as I mentioned last week, that the run in the dollar may be over for now. Of course, that could change overnight if the Trump tariffs are implemented. However, if the dollar continues to pull back, investors should consider the merits of investing in precious metals and emerging markets, as well as Bitcoin.
 
Technically, after the sharp decline we experienced this week, markets should re-test those lows before bouncing back. Instead, they bounced. It doesn't have to but I would not discount the risk of  80-100 points of downside on the S&P 500 Index from here on the back of a tariff announcement.
 
In my last column, I warned readers to expect a decline. I advised those with cash to use that as a buying opportunity. Any further declines into next week would be another opportunity to add to positions.
 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.

 

     

@theMarket: Markets Head Toward New Highs in February

By Bill SchmickiBerkshires columnist
As we step into the new year, stocks have soared in celebration as Donald Trump took the reins of office. This transition of power has brought a wave of optimism, which can continue, although a mild bout of profit-taking in the near term should be expected.
 
A flurry of Day One executive orders kept the markets busy parsing the meaning of this one or that one. However, the enthusiasm had more to do with what President Trump did not do than what he did. The greatest fear of investors was that the president would levy 10 percent tariffs across the board on all nations. Some nations, such as China, Mexico, and Canada, were expected to get hit by even higher duties on Day One. It didn't happen.
 
Most economists are convinced that tariffs would not only hurt economic growth both here and abroad but also fuel further growth of inflation. That does not mean that tariffs are off the board. The president indicated that tariffs on our North American trading partners could be announced by early February. China, however, not so much.
 
The currency markets immediately began to sell the dollar, which has been a winning trade (up 10 percent) over the last several months. Foreign nations have been willing to see (or orchestrate) their currencies decline to reduce the impact of the expected 10 percent tariffs Trump promised during his campaign. See how that works?
 
As a result, the yield on U.S. bonds fell in tandem with the dollar. Those developments partially explain the rally in equities this week. Of course, this trade can reverse in the blink of an eye. The president has not said tariffs are off the table. I believe it is just a question of when some countries will be targeted for tariffs. Trump has made it clear that tariffs are a negotiating tactic. There is no reason to think he would drop this tool in the days and weeks ahead. However, do not tariff trade. That is a losing proposition for those who tried that during Trump's first term.
 
Next week, the Federal Reserve meets on Jan. 29. Expectations are that the FOMC will stand pat, keep interest rates where they are, and take a wait-and-see attitude toward the future. Bond investors are not expecting any more than one or maybe two interest rate cuts (if any) during 2025. Many of the president's policies could boost economic growth and possibly inflation and the Fed will want to see how the government's economic policies unfold. 
 
Investors are focusing almost solely on Donald Trump. In a Davos speech on Thursday, for example, the president said that interest rates around the world should be "dropped immediately" and that the price of oil should also be lowered. Taking those statements as gospel, I think is a mistake.
 
A U.S. president may be able to jawbone an easier interest rate policy from a Fed chairman. It has been done before, for example, under Richard Nixon's administration, but he has zero influence on other central bankers worldwide. As for the oil price, OPEC-plus is not about to reverse policy quickly, nor would Saudi Arabia agree without some kind of multi-billion-dollar trade deal since that nation needs Brent Crude at $90 a barrel or higher to balance its budget.
 
After living and investing through Trump's first term, I learned that much of what the president says should be taken with more than a grain of salt. I consider his many pronouncements as more of a wish list, some outrageous, others as catalysts for change. He announced his new initiative called Stargate this week. It is an artificial intelligence infrastructure project, which is a joint venture formed by OpenAI, Oracle, and SoftBank. It is a great idea that promises big dividends for our country.
 
The three companies, he said, would invest $500 billion in AI infrastructure. Yet Elon Musk, the world's richest man and a close Trump adviser, who was also an early investor in AI, responded to the announcement by expressing some doubt.
 
He posted on his social platform X that these venture partners "…don't actually have the money," to accomplish the president's goal. His critique enraged many of the president’s yes-men, but the beauty of Musk is that he can speak his mind with impunity. That may get him in trouble down the road with his new-found, best bud but not right now.
 
The point is that investors should not take everything the president says as gospel. Instead, consider his statements more of a directional outline of where he wants the nation and the world to go. It doesn't mean that what he wants he gets, as his first term demonstrated.
 
As for the markets, I am looking for a small pullback in the markets over the next few days leading up to the FOMC on Wednesday. I would consider that a gift. It would be a dip worth buying before the market resumes its climb to new highs.
 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.

 

     

@theMarket: Markets Await the Inauguration

By Bill SchmickiBerkshires columnist
"Day One" arrives on Monday and investors are waiting with bated breath to hear what and how the new administration will handle the myriad problems that beset the nation. No one knows how that day will go, and the stock market reflects that.
 
Stocks are up since the beginning of the year but not by much. Granted the total gains for the first five days of January were positive and that is a good sign for those who take stock in those kinds of portents. Normally if the S&P 500 Index finishes with gains by the close of the fifth day of the year (and it did), the "rule of the first five days" says a gain for the entire year is likely.
 
Over the last decade, this rule worked in five cases where stocks gained in the first five days. Since 1950, the market has been up 13 percent on average in those years when the 5-day rule was in force. For me, I would rather see positive developments in inflation, bond yields, and the dollar before declaring the year a win or loss for investors.
 
This week, we did have some "good news" on the inflation front. The Consumer Price Index and the Producer Price Index for December were better than analysts feared. Make no mistake, the inflation rate is still climbing just not as fast as some may have expected.
 
Inflation has been moving in the wrong for the last three months and I see it climbing again in January.  However, the data was enough to halt the steady climb higher in the U.S. Treasury, 10-year bond, at least for a day or two.  Yields have been climbing, and stocks have been declining since the beginning of December. Prior to that, stocks and bond yields were going up at the same time. What changed?
 
Expectations that the Trump Administration's tariff policies, tax cuts, and increased government spending in areas such as defense would contribute to rising inflation, rising deficits, and more debt. The argument that all these policies would allow the economy to grow its way out of the present debt and deficit crisis has left the bond market saying, "Show me."
 
It is why the financial markets are marking time, trading in a range until more information is forthcoming. Traders want to see the new regime put some flesh on the bones of Trump 2.0. The good news is that this time around, the new administration appears far better prepared to take the helm, with a better organization and hopefully a group of well-thought-out initiatives.
 
Expectations are elevated by at least half the voting population and the business community. Both small business and corporate surveys indicate a rising tide of support for the future direction of the country under Donald Trump. However, there are just as many Americans who fear this is the end of the world as they know it.
 
It appears that partisanship is alive and well and beginning to muddy what has historically been areas of reliable economic data. In the most recent University of Michigan Consumer Survey, for example, Republicans have become more optimistic about the economy and inflation, while Democrats have become more pessimistic.
 
The American Association for Individual Investors survey this week showed the highest percentage of bears in a long time while bullish sentiment hit the lowest level since 2023. Normally, I would see this as a bullish contrarian indicator but without knowing the partisan divide among participants, the data could be skewed meaningfully.
 
In any case, next week should determine the market's direction at least in the short term. The market's risk gauge, the volatility Index (VIX), does not show any increase in buying into the event which means that any volatility coming into Monday will be from the market reacting to what is said or not said about programs and policies during the day.
 
We are stuck between levels that indicate that the S&P 500 Index could regain the old highs or fall back below 5,800 based on the events around the inauguration and its aftermath. We do know that Donald Trump is quite adept at pumping up his audience. If the S&P remains above 5,848,  we should be okay.
 
I apologize for missing last week's column. In this difficult time, I wanted to be there for readers but another bout of COVID kept me in bed most of last week and this week. A special shout out to my loving wife Barbara for taking such good care of me.
 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.

 

     
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