CWS Market Review – January 14, 2025

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One hundred and fifty years ago today, Congress passed the Specie Resumption Act. This act put the country back on the gold standard. The idea of the act was to get everything back to normal following the hectic and inflationary policies of the Civil War. I can’t help but think of the similarities between that era and today.

When you’re at war, anything not directly related to the war effort gets tossed aside, and that includes fiscal discipline. For them, it was a war; for us, it was a pandemic. During the Civil War, the government stopped paying gold or silver in exchange for currency. Instead, it started printing greenbacks which weren’t backed by anything.

Now that the war was over (we won), Congress wanted to get back to exchanging gold or silver for dollars, hence the name Specie Resumption. I bring this up not to do a lesson on economic history but to show the centrality of inflation’s role in our economic life.

Tomorrow, the government will release the CPI report for December, and I’m concerned that it will show more evidence that inflation isn’t melting away. The consensus on Wall Street is that consumer prices rose by 0.3% last month. The Street also expects an increase of 0.3% for core prices.

The funny thing is that if any of the politicians who debated the act in 1875 were magically transported to our time, they certainly would be astounded by many things in our modern age, yet they would largely understand our current monetary predicament. They had a war. We had a pandemic. They printed greenbacks. We let inflation fly, and now we’re trying to reel it back in, and that’s proving to be more difficult than we thought.

The damage of inflation stings. Consider that over the three-year period covering 2022, 2023 and 2024, the S&P 500 gained 29.3%, not counting dividends.

Inflation, however, increased by 13.2%, and that doesn’t include the final month of 2024. We’ll get the data tomorrow. In simple terms, inflation ate up nearly half the market’s profits over the last three years. It’s like having a silent partner who takes half your winnings, before taxes.

Investors in the 1970s certainly recall how troubling inflation can be. In fact, it was 50 years ago tomorrow that President Gerald Ford began his State of the Union Address by saying, “The state of the union is not good. Millions of Americans are out of work. Recession and inflation are eroding the money of millions more. Prices are too high, and sales are too low.”

Incidentally, this is a big time of year for gold-related milestones. (Hat tip to my friend Gary Alexander who is a fountain of market history.) In January 1975, gold was finally legalized for Americans to own, and it was 45 years ago, in January 1980, that gold peaked at $850 per ounce.

In the 1964 film, Goldfinger, Auric Goldfinger planned to irradiate all the gold in Fort Knox thus increasing the value of his gold. He would have been a lot better off doing nothing since gold increased dramatically over the next 16 years.

The 1980 gold rally was extreme. Adjusted for inflation, gold was going for over $3,400 per ounce. This was the time when the Hunt Brothers tried to corner the world silver market. In real terms, gold has lost more than 20% of its value over the last 40 years. If you had paid $25 for an ounce of gold instead of $850, you still would have lost to the dividend-adjusted S&P 500.

Twenty-five years ago, the Dow peaked at 11,723. It wouldn’t top that for another seven years. Still, the market is up fourfold in 25 years. Gold has endless appeal for some investors, but for the long run, I’m on the side of stocks.

Strong Jobs Report

On Friday, the Bureau of Labor Statistics said that the U.S. economy created 256,000 nonfarm payrolls last month. That was well above Wall Street’s forecast for a gain of 155,000 jobs.

The unemployment rate fell by 0.1% to 4.1%. The jobless rate has been below 4.3% for the last 38 months in a row. The economy also added 212,000 net new jobs in November. Last year, the U.S. economy added over 2.2 million jobs. The broader U-6 measure of joblessness fell by 0.2% to 7.5%.

Here are some details from the report.

Job growth came from the familiar sources of health care (up 46,000), leisure and hospitality (43,000), and government (33,000).

Retail also saw a sizeable gain, up 43,000 after losing 29,000 in November heading into the holiday shopping season. The sector saw payroll growth of 2.2 million for the full year, down sharply from the 3 million gain in 2023.

Revisions for prior months were less substantial than has been the recent trend. The October count saw an upward change of 7,000 to 43,000, while the November number was cut by 15,000 from the prior estimate.

The household report showed that full-time jobs increased by 87,000, and part-time jobs rose by 247,000.

Thanks to the strong jobs report, the bond market got knocked down. In two days, the yield on the two-year Treasury rose 13 basis points. The yield on the 10-year Treasury is up over 100 basis points in four months, and it’s at its highest yield since late 2023. The 2/10 Spread just hit a 2.5-year high.

On Tuesday, we learned that producer prices rose 3.3% over the last year. That’s the steepest increase in nearly two years.

You can expect the Fed to take a breather later this month. The odds for another rate cut are now around 2%, and for March, the odds are at about 22%.

The jobs report was a classic good news/bad market event. Higher jobs growth means there’s no need to cut rates, and stocks don’t like that.

Thanks to a late-day rally, the S&P 500 closed higher today, but earlier in the day, the index was on pace for its lowest close in over two months. The S&P 500 recently dipped below its 100-day moving average, and since the end of the third quarter, the stock market has gained just 1.4%.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

P.S. I was recently on the “We Study Billionaires” podcast with Clay Finck. I had a lot of fun. Check it out.

Posted by on January 14th, 2025 at 6:22 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.