This Week in Review | Japan GDP, Fed Minutes, German Election (Feb. 21, 2025)

Transcript

Scott O’Leary:

Hello, and welcome to This Week in Review. This weekly segment is designed to highlight a few important developments you may have missed this week, what they mean for markets, and most importantly, for investors.

Now, let's review what happened this week.

First, Japan's new GDP report.

On Monday, Japan shared its first estimate of how its economy did in the last quarter of 2024, and the news was pretty good! The economy grew at a 2.8% annualized rate, which was faster than the 2.1% experts had expected. This is also the third quarter in a row of growth for Japan, the fourth largest economy in the world. But taking a closer look reveals a slightly less rosy picture. Much of the growth came from rising exports, more government spending— both of which can be volatile—and a rebound in business investment. Meanwhile, personal spending, which represents more than half of Japan's economic output, barely grew. Imports also dropped—which can signal weak domestic demand— and while wages in Japan have been growing, they're not outpacing inflation by much, which could signal headwinds for consumption. That said, there are other bright spots. A survey of private businesses, called the composite PMI, or Purchasing Managers' Index, shows business activity has been picking up since November and was firmly in expansionary territory in December and January. So, while there are well-known challenges, Japan should continue contributing to global economic growth this year.

Next, Fed meeting minutes.

On Wednesday, the US Federal Reserve released minutes from their January policy meeting. As a reminder, the Fed left its policy rate unchanged in January following three rate cuts at the end of 2024. But investors look at Fed minutes for more insights on what went into the decision and what might lie ahead. The minutes revealed Fed officials expressed concern over recently hotter- than-expected inflation, as well as tariff threats, leading to caution about future rate decisions. That said, we don't believe these discussions, speeches or forecasts really provide much actionable insight for long-term investors. Since early December, investors have worried strong jobs data and tariffs may mean fewer Fed rate cuts, but it's impossible to know what the Fed does or will do next, and fundamentally, we don't believe stocks depend on rate cuts. The Fed often says one thing and does another. The past couple of years have shown how unreliable it can be to base your market outlook on shifting Fed policies. It's just one of many factors that drive markets. So, in our view, it's better for long-term investors to tune out the speculation altogether.

Finally, the German election.

Germany's political parties are wrapping up their campaigns this week ahead of Sunday's federal election. As always, our analysis is politically neutral. And, of course, here's why: Letting political bias influence investing decisions is often a mistake. People often assume their favorite party will lead to strong equity returns, while others will hurt them. But history shows stocks can perform well no matter who is in charge. For European stocks, we believe the end of the German election could bring more clarity, even as coalition talks begin and a new government eventually forms. Recent polls suggest no single party will win a majority, so another gridlocked multi-party coalition government is likely. This gridlock can actually help create stable, predictable business conditions in Germany and across Europe. On top of that, we think the German economy might outperform the gloomy expectations many have this year. A combination of modest growth and post-election gridlock could create some positive surprises for German and European stocks.

That's it for this week.

Thanks for tuning in to This Week in Review. If you're looking for more insights, then don't miss our other series, 3 Things You Need to Know This Week, released every Monday. You can also visit fisherinvestments.com anytime for our latest thoughts on markets. Thanks again for joining us and don't forget to hit "like" and "subscribe"!