Rocking and Rolling

A telling morning... Trump's interest-rate demand... The president believes the Ukraine war will end soon... A 'hot' inflation reading... The Fed isn't changing plans yet... A comfy pillow... Remember your own goals...

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A brief timeline tells the tale today...

This morning, 7:58 a.m. Eastern time – President Donald Trump posts on social media: "Interest Rates should be lowered, something which would go hand in hand with upcoming Tariffs!!! Lets Rock and Roll, America!!!"

8:30 a.m. – January consumer price index ("CPI") data comes out "hotter" than expected, up 3% year over year.

9:04 a.m. – Trump writes: "BIDEN INFLATION UP!"

9:30 a.m. – U.S. stock markets open lower, with the Dow Jones Industrial Average and Nasdaq Composite Index down about 1% as it looks like another volatile day ahead.

10:46 a.m. – Federal Reserve Chair Jerome Powell, while sitting at a House Financial Services Committee hearing in Washington, offers no comment on Trump's break-of-dawn call for lower interest rates: "I, as a practice, never comment on anything the president says, but I think people can be confident that we'll continue to keep our heads down, do our work, [and] make our decisions based on what's happening in the economy."

10:47 a.m. – California Democrat Brad Sherman reads to Powell Trump's first post word-for-word and quips, "I certainly agree with the 'rock and roll, America.'" Powell smirks and nods. But Sherman floats the hypothesis that 10% to 25% blanket tariffs could lead to higher inflation in the U.S. (and thus higher interest rates from the Fed). "We're reserving judgment until we actually know what the policies are," Powell replies.

Around 11:30 a.m. – I (Corey McLaughlin) decide on this start to today's Digest...

11:53 a.m. – Trump posts on social media that he just had a "lengthy and highly productive phone call with President Vladimir Putin of Russia" and says negotiations about ending the war in Ukraine are set to begin (something we discussed yesterday was likely to happen this week).

Here's the biggest surprise to us...

On its own, there's nothing unexpected about Trump's call for rate cuts. We know Trump loves low interest rates and has for his entire adult life, as any real estate developer should. But it's the timing of this morning's news-making message that was surprising, and I don't mean that it was at the breakfast hour.

Eight days ago, Trump said that the Fed keeping its benchmark bank-lending rate steady – as it decided just two weeks ago – was the "right thing to do."

What gives? What materially changed between then and 7:58 this morning on interest-rate matters?

As far as I can tell, the only difference is a growing number of headlines that Trump's tariffs could lead to higher inflation in the U.S.

Perhaps not coincidentally, Trump's promised "reciprocal" tariffs, presumably on China, did not come to fruition on schedule yesterday. Perhaps he has grown more sensitive to the market expectations, though White House spokesperson Karoline Leavitt today promised news to come on this front by tomorrow.

If we work on connecting the dots, a private belief by Trump that the war in Ukraine could be ending soon is likely also playing a role in everything. Trump has said – including in an address to the World Economic Forum in Davos, Switzerland last month – that the war ending would reduce energy prices, and thus he would "demand" interest rates should head lower.

When you consider this, that's precisely what we heard this morning.

But given 'current' inflation...

The timing of Trump's call couldn't have been worse. About 30 minutes later, January's CPI numbers came in above Wall Street expectations across the board...

Year-over-year inflation climbed to 3% and the CPI was up 0.5% from December, according to the Bureau of Labor Statistics. Wall Street consensus expectations were for a 2.9% rise year over year and a 0.3% monthly gain, and even that would have been well above the Fed's supposed 2% annualized goal.

"Core" CPI – which excludes energy and food – also rose 0.4% for the month, making for a 3.3% year-over-year rate, also above expectations.

After the report came out, stocks were lower and market expectations for rate cuts this year diminished. And the 10-year Treasury yield rose by 10 basis points, indicating concerns about a higher pace of inflation and "higher for longer" Fed policy.

However, we've seen the market overreact in both directions to "hot" and "cold" inflation data over the past few months and this could be more of the same, at least when it comes to the parlor game of "What Will the Fed Do Next?"

Powell brushed off today's CPI readings...

When asked about the report during his second day of required semiannual testimony before Congress, the Fed chair downplayed making much of "one or two" reports. He reiterated that the central bank prefers to gauge inflation through the personal consumption expenditures ("PCE") price index.

Powell also suggested people should pay more attention to tomorrow's producer price index ("PPI") numbers for a better read, since it tends to be more of a leading inflation indicator than CPI. But in general, he didn't sound all that concerned...

The truth is the economy is strong, the labor market is solid, and we have the luxury of being able to wait and let our restrictive policy work to get inflation coming down again, and that's what we're doing.

Cut through all the noise and never-ending stream of headlines out of Washington, and that's the key line I'll take away from today. The Fed isn't changing its stance on intending to lower interest rates further, but it isn't quite ready to pull the trigger.

Powell also said...

It's a fairly uncertain environment right now... There's some uncertainty out there about new policies. We're just going to have to wait and see what the effects of those policies are before we think about what we can do, or should do.

Powell finished taking questions at about 1 p.m.

He stood from his chair for the first time in about three hours and walked away. An aide discreetly grabbed a yellow couch pillow that the Fed chair had evidently been sitting on the whole time. Smart, comfortable guy.

About the same time, Trump posted on social media (again) that he just got off the phone with Ukrainian President Volodymyr Zelenskyy. Busy, deal-making guy. "The conversation went very well," Trump wrote. "He, like President Putin, wants to make PEACE."

The major U.S. indexes moved up a little, continuing a drift higher from the morning lows. By closing time, the Nasdaq was little changed and the Dow was down by about 0.5%, not as bad as things appeared in the morning.

Oil prices did fall, dropping more than 2% in the past 24 hours.

Perhaps there's a lesson here... At least wait till lunch before making any judgments on the developments out of Washington these days. Better yet, make it a week or two. Also, it has been too long since we've said this, but as always, remember your goals for your portfolio.

When you maintain that focus, it's easier to determine what information is important or what to ignore from the constant news cycle. To that point: While we may see more volatility ahead, as we said yesterday, each of the major U.S. indexes remains in a bullish long-term trend.

New 52-week highs (as of 2/11/25): Alpha Architect 1-3 Month Box Fund (BOXX), Coca-Cola Consolidated (COKE), HealthEquity (HQY), Grand Canyon Education (LOPE), Meta Platforms (META), Republic Services (RSG), S&P Global (SPGI), Torex Gold Resources (TORXF), UGI (UGI), United States Commodity Index Fund (USCI), and VeriSign (VRSN).

In today's mailbag, feedback on yesterday's edition about tariffs and more... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Hi Corey, Good newsletter! I think there is so much going on with the new Trump Administration that nobody knows how things are going to turn out. I have faith that President Trump and his advisors know what they are doing and in perhaps 12-24 months, changes will be less rapid and the U.S. is going to be much better off than we are today..." – Subscriber Michael U.

"Corey (and Nick), Good report. While you generally don't make recommendations, articulating 'unfairly' beaten sectors and stocks is interesting. If readers haven't done so, the links are a good read (and an incentive for those without access). Keep up the good work..." – Stansberry Alliance member Bill B.

All the best,

Corey McLaughlin with Nick Koziol
Baltimore, Maryland
February 12, 2025