This commentary was issued recently by money managers, research firms, and market newsletter writers and has been edited by Barron's.

Parsing PCE

U.S. [Economics] THINK Economic and Financial Analysis Jan. 31: Today's U.S. data suggest that inflation remains on the path toward 2%, but with huge uncertainty over regulatory, tariff, fiscal, and immigration policy, the central bank can't leave anything to chance and will be keeping monetary policy unchanged until June, we believe.

The Federal Reserve's favoured inflation measure, the core personal consumption expenditure price deflator, rose 0.2% month over month, and 2.8% year over year in December, as the consensus predicted, but the good news is that to three decimal places it is 0.159%, so below the 0.17% month-on-month change we need to average over 12 months to deliver 2% year-on-year [price growth].

We are now seeing as many of the month-over-month readings coming in below 0.17% as above, which offers the Fed the flexibility to respond with further rate cuts this year.

James Knightley

Nasdaq Has Bad Breadth

Cabot Turnaround Letter Cabot Wealth Network Jan. 31: If [February] is fated to be bearish, I would argue the weakness is more likely than not to manifest itself within the tech sector. The reason for that is because there has been an abnormal show of internal weakness from a key breadth metric for the Nasdaq, namely the new 52-week lows.

Between November and January, while many segments of the tech sector rallied to new highs, a growing number of Nasdaq stocks made new lows, which isn't a normal relationship.

Ideally in an overall bullish environment, new lows should be shrinking while stock prices are making new highs. But instead, what we saw in the fourth quarter was increasing new lows, led by semiconductor and therapeutic stocks...

With that in mind, whatever new purchases we might end up making in the coming month will likely be [in] areas outside of the tech sector -- at least until the internal data improve. For now, our focus will primarily be in the stronger-performing NYSE stocks.

Clif Droke

Los Angeles' Recovery

Regional Commentary Wells Fargo Jan. 30: Longer term, it is difficult to imagine the Los Angeles metro area not experiencing a full recovery from the recent fires. Of course, an economic recovery doesn't necessarily mean the well-being of an economy has been restored, and the societal, environmental, and other non-economic harms of the wildfires may leave a lasting imprint.

Still, Los Angeles remains a premier destination for global capital, a status that should help foster a rebound as federal government aid arrives and the rebuilding efforts get underway. In addition, plenty of green shoots have emerged for Los Angeles recently. The entertainment industry appears to have rightsized and a slate of new streaming, television, and movie productions is a sign that activity is beginning to improve. The Port of Los Angeles recently announced that 2024 was the second busiest year on record, a timely reminder that Los Angeles is a key node in the U.S. supply chain and international trade network.

Los Angeles will host the 2026 FIFA World Cup and the 2028 Olympic and Paralympic games, which will help spur tourism and provide a major boost to the local economy. Meanwhile, less-restrictive monetary policy in the years ahead should help the segments of the Los Angeles economy that have been hampered by high interest rates.

Charlie Dougherty, Jackie Benson, and Ali Hajibeigi

Capital/Jobs Ratio Peaks

Random Ruminations Paulsen Perspective Jan. 30: Since at least the 1990s, there has been a fairly close relationship between the capital goods-per-job ratio and the S&P 500 stock price index. Major movements in the stock market since 1992 have closely mirrored movements in the capital/employment ratio. When the capital/employment ratio rises, it suggests companies are confident enough in profitability to raise investments in their staffs, leading to stronger worker productivity. Naturally, the stock market would respond favorably to this trend.

However, once companies begin slowing capital investments, the stock market has typically struggled. This happened before and during the dot-com bust, the 2008-09 financial crises, and leading up to the 2018 correction and pandemic stock-market collapse.

Most recently, the capital/employment ratio peaked in the spring of 2023 and has been primarily declining ever since. So far, the stock market has not shown any reaction to a declining capital/employment ratio. At a minimum, this is a warning sign for investors. Will the S&P 500 soon suffer a correction , reflecting the recent reduction in investment spending per job, or will this time prove to be different?

Jim Paulsen

Consumer Sentiment Sours

The Pulse of the Market RBC Capital Markets Jan. 27: We continue to keep a close eye on the University of Michigan consumer sentiment survey, which came out on Friday [Jan. 14], capping off a light week for economic data in the U.S. Two things have been keeping us intrigued with this widely watched gauge of the "vibes."

First, it has been tracking year over year stock-market performance pretty closely post-Covid.

Second, there have been some interesting divergences under the surface in recent months, with improvement in men, lower income, and lower education cohorts, and deterioration for women, higher income, and higher education cohorts.

The disappointment seen in the headline data last week was noteworthy to us, not only because it was unanticipated by market participants, but because we saw the improvement that had been underway for men and the lower education cohort reverse course, lending support to the idea that the deterioration in consumer sentiment had some breadth.

Lori Calvasina and Team

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January 31, 2025 19:11 ET (00:11 GMT)

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