Top of the Morning: CIO Strategy Snapshot - Digesting the data and policy
Feb 18, 2025
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Jason Draho, Head of Asset Allocation Americas at UBS Chief Investment Office, provides keen insights into current economic data and policy shifts. He analyzes January's inflation trends and disappointing retail sales, unveiling mixed signals in the U.S. economy. The conversation also highlights the intricate federal budget negotiations and their potential impact on market stability. Draho shares key strategies for navigating uncertainty, focusing on the resilience of the S&P 500 and tech sectors, while emphasizing inflation hedges for investors.
Recent economic data shows stable inflation trends despite short-term volatility, suggesting a moderate trajectory for the year ahead.
Equity markets remain resilient amidst political uncertainty, with investors viewing recent developments as noise rather than threats to stability.
Deep dives
Current State of U.S. Inflation
Recent data on U.S. inflation presents a mixed picture, with the January Consumer Price Index (CPI) coming in higher than expected, causing a notable market reaction. While certain categories like motor vehicle insurance and airfares showed significant increases, the overall inflation narrative remains somewhat stable. The shelter component of inflation has been declining, indicating potential disinflationary trends moving forward. Analysts believe that despite some short-term volatility, inflation is not accelerating in a concerning manner, which suggests a more moderate inflation trajectory for the rest of the year.
Impact of Retail Sales and Consumer Sentiment
January's retail sales figures were disappointing, falling short of growth expectations, which may reflect a return to spending norms following the holiday season. This decline could also indicate consumer uncertainty about policy directions related to inflation and tariffs, as evidenced by rising inflation expectations in consumer surveys. Moreover, small business sentiment appears to be improving regarding economic outlook, yet hiring and capital expenditure plans are not reflecting the same optimism. This mixed data indicates that while consumers may express concerns, the overall economic resilience remains, but vigilance is needed as patterns evolve.
Market Reactions to Political Developments
Equity markets have been surprisingly calm despite a backdrop of political uncertainty and policy discussions surrounding tariffs, government spending, and potential economic changes. The S&P 500 remains close to all-time highs, and underlying economic indicators such as corporate earnings have shown solid growth. Investors seem to interpret recent political maneuvers as mostly noise rather than significant threats to market conditions, with expectations that any drastic changes from the new administration may be limited. The prevailing sentiment suggests that while some risks exist, the broader economic context continues to be supportive for equity markets.
Jason drops by the 1285 studio to share his assessment of recent economic data, including on inflation and retail sales. We also take inventory of recent policy developments out of Washington DC, spanning DOGE to tariffs, to Congressional budget negotiations. Plus, thoughts on overall market activity, and a look at positioning recommendations. Featured is Jason Draho, Head of Asset Allocation Americas, UBS Chief Investment Office. Host: Daniel Cassidy
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