Risk asset prices appear to finally be consolidating following a strong post-election rally. This makes sense given how initial enthusiasm about Trump’s anticipated pro-business & pro-liquidity economic plans are giving way to the potential impacts of such policies. In particular, the bond market is adjusting to the risk that inflation could move higher throughout 2025, especially if Trump’s aggressive tariff policy is enacted. Rising yields are also a big part of the reason why we’re seeing gold start to pull back again. The 10-year isn’t even back to the level it was last summer, so there may be some sizable upside in yields still before we start to see a flight to safety pulse returning.
If you’re looking at the headline economic data for signs of concern, there largely haven’t been any (outside of stubbornly persistent inflation). The labor market is still holding up, even if it isn’t as strong as it was in the past. Inflation is, for now, contained and presenting little need for the Fed to make any aggressive changes to monetary policy. Retail sales in October posted solid growth again on top of an upward revision to September’s number. A look at these numbers in total suggests an economy that is still growing at a healthy clip and showing no major signs of an imminent slowdown. Of course, the biggest catalysts for that slowdown may not be in place until early 2025. Only after we get a full grasp on what economic and trade policies will actually look like can we try to put a timeline on when it might show up in the data.
Keep reading with a 7-day free trial
Subscribe to The Lead-Lag Report to keep reading this post and get 7 days of free access to the full post archives.