US stocks consolidated gains near record highs, as soothing inflation data from yesterday was blurred by concerns over Federal Reserve (Fed) independence and broader political noise.
Looking at the data, the US CPI came in largely in line with expectations. Headline inflation held steady at 2.7% y/y, while core inflation eased to 2.6% — slightly below consensus. Cherry on top for Fed doves: real earnings fell in December, a development that could help cool demand and keep inflation in check.
Still, the US 2-year yield hovered above the 3.50% mark, while the probability of a March rate cut slipped below 30%, down from around 50% last week. US PPI data is due today, but even a soft print may fail to revive dovish Fed expectations.
Why? Because market pricing is no longer driven solely by economic data — politics is playing an increasingly central role.
In particular, broad support for Jerome Powell amid the DOJ-related controversy appears to be influencing markets. JPMorgan CEO Jamie Dimon said yesterday that attacks on the Fed by the Trump administration could “backfire and push borrowing costs and inflation higher.” He’s right: cutting rates more than necessary today risks higher inflation tomorrow, keeping borrowing costs elevated for longer.
That dynamic is pushing longer-dated yields higher and steepening the US yield curve — hardly the outcome the White House would prefer. Still, Donald Trump appears unmoved. Either way, with the next Fed Chair announcement approaching, concerns around Fed independence are likely to remain firmly in the headlines. These worries continue to weigh on the US dollar and Treasuries, while supporting gold and silver, both of which are rallying to fresh records. Silver traded above $91 per ounce in Asia this morning.
On the US economy, Jamie Dimon reiterated that growth remains “resilient,” noting that consumers continue to spend and businesses are generally healthy.
Turning to JPMorgan’s own results, Q4 earnings were solid overall, with stronger-than-expected profits helped by trading and interest income. However, earnings were held back by a large one-off cost linked to the Apple Card business, while dealmaking revenue missed estimates due to transaction delays into this quarter. The stock fell more than 4% post-earnings, the S&P 500 and Nasdaq 100 also fell.
Still, JPMorgan’s broader assessment of the US economy remained constructive — supportive for the wider equity complex. Today, Bank of America, Wells Fargo and Citigroup head to the earnings confessional.
Zooming out, S&P 500 companies are expected to deliver more than 8% earnings growth overall. Technology is once again expected to do the heavy lifting, with Q4 revenues seen growing around 18–20% — strong, but moderating compared with prior quarters.
That said, US tech is priced close to perfection. Impressive headline numbers alone may not be enough to spark fresh rallies. Investors will dig deeper into how revenues and loans are booked, ensuring the figures reflect sustainable growth rather than hidden risks.
Tech investors see two key risks to the AI rally: overspending and over-leverage. Companies addressing both are better positioned to extend gains — namely those with low debt, ample cash, and exposure across the AI supply chain, from chips to models and applications. Google, Microsoft and Amazon fit that profile.
For those seeking cheaper valuations, Asian tech remains attractive. South Korea’s Kospi hit another record today, the Hang Seng is consolidating near last October’s peak, and Japan’s Topix is also at fresh highs, supported by expectations of stronger fiscal stimulus should Takaichi consolidate power in a snap election.
Beyond tech, a softer US dollar and still-low energy prices have supported emerging-market equities. The World Bank raised its global growth forecast, saying the world economy has proven “surprisingly shock-proof” despite a “historic” escalation in trade tensions. The US economy could see a meaningful growth boost, while China and India are expected to grow near 5% and up to 6.5% respectively — a supportive backdrop for EM stocks.
On trade, the US Supreme Court last Friday offered little clarity on the legality of tariffs imposed under questionable justifications. A ruling is expected today. If deemed unlawful, the US may need to refund tariff revenues to companies that filed complaints last year, potentially widening the US budget deficit. That would be negative for US bonds but welcome relief for exporters to, and importers from, the US — including autos, consumer staples and tech.
But the tensions are never over.
Donald Trump said he would impose a 25% tariff on goods from countries doing business with Iran amid nationwide protests and a violent crackdown in the country. China, one of the largest buyers of Iranian oil, is watching closely. Such a move could reignite US-China trade tensions.
Soybean futures — a barometer of US-China trade relations — fell on the latest developments.
As for oil, Iranian unrest is adding upward pressure to prices, alongside attacks near the Caspian Pipeline disrupting Kazakhstan’s exports, compounding delays from harsh winter weather and mooring damage. US crude moved above its 100-day moving average and climbed to around $60 per barrel. However, US crude inventories rose by roughly 5.3 million barrels last week — far above expectations for a 2 million-barrel build and the largest increase in two months — suggesting that once temporary supply disruptions fade, prices may drift back toward a bearish trend.
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