This Week in Review | Stock Market Volatility, Federal Job Cuts, US Inflation (Feb. 28, 2025)

Transcript

Meg Leiken:

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 may mean for markets, and most importantly, for investors.

Now, let's review what happened this week.

First, stock market volatility.

Recently, markets have experienced some negative volatility as headlines focus on declining consumer sentiment, tariff news, federal government layoffs and more. When downward volatility strikes, many try to pinpoint a specific cause, but market ups and downs—like day-to-day pullbacks and even corrections—are completely normal in bull markets. Volatility can occur for any reason or no reason at all, even when years when stocks perform well. Negative volatility can even serve as a positive for bull markets, as it dampens investor sentiment and leaves room for more upside surprise— a positive for stocks. We're optimistic this will be another strong year for stocks, but a good year doesn't always mean a calm one. While many years include significant market drops, they can still end with solid gains. Remember, short-term fluctuations are simply part of investing in stocks. Over time, this volatility is what's tied to stocks historically higher returns.

Next, federal government job cuts.

This week, much was said about federal government layoffs as the administration worked to reduce its workforce. We appreciate this can be a polarizing topic, but as with all of our analysis, we seek to objectively understand any economic implications. And though we sympathize any time people lose their jobs, the broader impact of cuts so far appears pretty minimal. Estimates vary, but the total number of layoffs and voluntary buyouts announced so far seem to be less than 1% of the US government's 3 million employees. To put it in perspective, the federal workforce was about 2.8 million employees back in 2022. So, the layoffs only partially reversed the hiring that's occurred over the last few years. Additionally, the US economy and stock market rely much more heavily on the private sector. The entire federal workforce accounts for around 1.9% of the 161 million civilians employed all over the nation. So, while we recognize these layoffs can have a very real human impact, we don't think these recent cuts will materially shift the US employment environment overall.

Finally, US inflation.

On Friday, we got January's Personal Consumption Expenditures, or PCE Inflation Report, the Fed's preferred measure of inflation. It showed headline inflation decelerated to 2.5% versus the prior year. Core inflation, which excludes the more volatile categories of food and energy, also fell slightly to 2.6% over the last year, back to levels we saw last summer. While it's true inflation has edged up in recent months, it's also helpful to zoom out. Over the last few years, we've seen inflation cooling on a global scale, and a few months of higher readings doesn't erase that trend. Some worry proposed tariffs may push inflation even higher. While tariffs can raise prices for certain goods, they're unlikely to create widespread long-term inflation across the economy.

That's it for this week.

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