Latest / Paramount Wealth Perspectives / The Fed, Liquidity, and the Consumer: Three Pillars That Matter Now - 12/1/25

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The Fed, Liquidity, and the Consumer: Three Pillars That Matter Now - 12/1/25 · Paramount Wealth Perspectives

• 0:00
  Chris Coyle: Intro song
• 0:11
  Hello everyone.
• 0:12
  Welcome to Paramount Wealth Perspectives, your go-to podcast for the latest updates on global markets and current economic events.
• 0:19
  This is your host, Chris Coyle.
• 0:21
  I'm the market director and an advisor here at Paramount Associates Wealth Management.
• 0:25
  And today I'm joined by our Chief Investment Officer, Scott Tremlett.
• 0:29
  Scott.
• 0:29
  Let's start with last week.
• 0:31
  It felt like one of those stretches where markets pushed back against the bearish narrative again.
• 0:36
  What stood out to you?
• 0:38
  Yes, Chris.
• 0:39
  Last week was one of those periods where everything seemed to catch a bid At the same time, equities, bonds, and commodities all moved higher into month end.
• 0:48
  It was a strong cross asset rally, no question, but I'd be careful about reading too much into it.
• 0:54
  These bursts of optimism can be powerful, but they can also be short-lived, especially in an environment where the underlying data is still mixed.
• 1:03
  And inequities, specifically the s and p 500 was up almost 4% on the week, which was enough to push November slightly positive after being in the red for most of the month.
• 1:14
  It was a big reversal over a short period, but again, one good week doesn't necessarily define the broader trend.
• 1:22
  And the sector leadership was interesting.
• 1:24
  It looked very risk on.
• 1:26
  It did communication services was up nearly 6%.
• 1:30
  Consumer discretionary, over 5% tech more than 4%.
• 1:34
  You had several large cap tech names putting on strong moves.
• 1:38
  Even Tesla was up 10%.
• 1:41
  Clearly the more cyclical, higher beta parts of the market we're doing the heavy lifting.
• 1:46
  But rather than calling this a definitive early cycle signal, we're saying it proves we're not late cycle.
• 1:53
  I think the more honest take is that the markets are reacting to the possibility of policy shifts, improve liquidity.
• 2:00
  And better than feared earnings in certain areas.
• 2:03
  Those can absolutely create bursts of strength.
• 2:06
  The question is whether that leadership can sustain itself or whether it fades once the next wave of data comes in.
• 2:13
  How about labor data?
• 2:15
  Because we did get mixed messages mixed, but with a theme, a DP showed a decline in private payrolls down about 13,500 over the four weeks ending November 8th.
• 2:27
  That's a real weakness.
• 2:29
  Now the government data is delayed because of the shutdown, but the September print showed unemployment rising to 4.4%.
• 2:37
  Again, softening beneath the service.
• 2:40
  But this ties into a lot of what we've been talking about.
• 2:44
  We believe that the inflection and labor already happened.
• 2:47
  Markets know it.
• 2:49
  The Fed is waiting for official confirmation, which is always lagging.
• 2:53
  You mentioned quote unquote, beneath the surface.
• 2:56
  We've been watching that internal market weakness.
• 2:58
  Yeah, and this is the part most people miss on the surface.
• 3:02
  The s and p was down only 5% from the highs recently, but underneath two thirds of the largest 1000 stocks have a 10% draw down or worse, one in four is down 20% or more.
• 3:16
  Gold even rolled over.
• 3:18
  In liquidity.
• 3:19
  You've been pounding the table that this is the key.
• 3:22
  Liquidity is the whole story right now.
• 3:24
  Earlier this year we talked about the clash between falling liquidity and a fed that's been tightening possibly too long.
• 3:32
  That dynamic hit the high momentum, low quality names first, and now it's showing up in the higher quality parts of the market.
• 3:39
  But I'm still constructive.
• 3:41
  As the government reopens, it's going to start drawing down its main checking account at the Fed when that account shrinks, that money flows back into the economy and financial markets.
• 3:53
  So in the near term, we should see a bit more cash sloshing around the system.
• 3:57
  And the fed ending tightening at the same time.
• 4:00
  That's a meaningful shift.
• 4:02
  this ties into investors finally asking whether the fed is too slow.
• 4:07
  True private labor.
• 4:09
  Data is telling you cuts should be bigger and earlier, but we aren't getting that yet.
• 4:14
  And the market is wrestling with that frustration.
• 4:16
  But again, once the cuts come, I think that becomes a huge catalyst for everything that's lagged for two years.
• 4:23
  Markets expect it next week, but the narrative around that has been volatile.
• 4:29
  Before we move on, we should talk about the consumer because last week we got a lot of signals from Black Friday.
• 4:36
  Some conflicting messages.
• 4:37
  A very complicated consumer.
• 4:39
  Right now.
• 4:40
  On one hand we saw record online spending nearly$12 billion, and that's up over 9% from last year.
• 4:49
  AI help shoppers find deals faster.
• 4:51
  You had traffic to.
• 4:52
  Retail sites are huge, but on the other hand, credit growth is slowing in almost every category.
• 4:59
  Research shows credit card growth, HELOC growth.
• 5:02
  Auto loans, everything is decelerating.
• 5:05
  Post rate cuts, and that's the key point.
• 5:09
  Rate cuts haven't actually helped the consumer yet.
• 5:12
  Mortgage rates went up slightly during the cutting cycle.
• 5:16
  Credit card rates barely budged and households lost almost$240 billion in interest.
• 5:23
  Income from savings because short term rates change instantly.
• 5:27
  So yes, people are still shopping, but they're doing fewer items per transaction, higher average selling prices, and a lot more bargain hunting.
• 5:37
  So record dollar spent, but softer unit demand and a weaker backdrop.
• 5:42
  Very true.
• 5:43
  Holiday spending isn't the victory lap people think it is.
• 5:46
  The US consumer is showing cracks.
• 5:49
  What's keeping the whole system stable is employment, and that too is starting to soften.
• 5:55
  Let's shift to this week.
• 5:56
  What are you watching most closely?
• 5:58
  There's a lot of data hitting this week as we work through delayed reports.
• 6:02
  We get manufacturing pmmi services, PMIs, vehicle sales, a DP, employment, industrial production, and finally that delayed September PCE print.
• 6:15
  And then Friday is a big one.
• 6:17
  Personal income, personal spending, the PCE Price Index, Michigan Consumer Sentiment and consumer credit.
• 6:26
  For me, three things really matter.
• 6:28
  First, it's the PCE, the Fed's preferred inflation gauge and the inflation path.
• 6:33
  We should see more confirmation that inflation is easing, but the nuance is this, inflation isn't the problem for the consumer.
• 6:42
  Prices are, prices are still elevated, especially for discretionary goods, partly because of those tariffs.
• 6:50
  So even if the inflation rate is falling.
• 6:53
  The price level still feels like a tax.
• 6:56
  And how do we get companies to lower prices without forcing a recession?
• 7:00
  Yes, a recession, not my base case, but why else would companies lower prices?
• 7:06
  That is the challenge.
• 7:08
  Secondly, it's labor.
• 7:10
  A DP and jobless claims.
• 7:12
  We know the private labor data has already weakened.
• 7:14
  If a DP confirms more softness, it reinforces the idea that the Fed is dragging its feet on the cuts.
• 7:22
  Thirdly, and most importantly to me is consumer spending and credit.
• 7:26
  Retail sales were up 0.2% last week, but consumer confidence fell sharply.
• 7:32
  If this week shows further cooling, it feeds into the narrative that the consumer is losing momentum heading into the first quarter.
• 7:39
  What about markets?
• 7:40
  Anything tactical?
• 7:42
  Tactical, I would say breadth of the market.
• 7:44
  Breadth of the market.
• 7:46
  And breadth of the market.
• 7:48
  If the liquidity improvement we talked about starts to show up, you'll see it first in the weakest, most beaten down corners.
• 7:55
  Profitless tech, small caps, speculative growth.
• 7:59
  Those should rally the most.
• 8:01
  That's my gauge on short term market movement.
• 8:05
  If they don't rally.
• 8:06
  Then we're not outta the weeds yet.
• 8:08
  Let's talk forward 2026.
• 8:11
  I know you are working on your current outlook yes, my 2026 view is still in process, but what I will say is I see more of an early cycle environment developing, not late cycle.
• 8:24
  I see a bump in the first quarter's growth overall, and I see late year upside surprises.
• 8:30
  I see earnings growth in the teens in the United States.
• 8:33
  I see monetary and fiscal policy creating tailwinds in the second half of 2026.
• 8:39
  Policymakers globally should be cutting rates.
• 8:42
  AI CapEx continues just at a more sustainable run rate.
• 8:47
  It always takes some time for companies to dial it in correctly, and consumer spending stays resilient because household balance sheets, despite all the strain today, are fundamentally strong.
• 9:00
  But you've said 2026 has the widest range of possible outcomes in years.
• 9:05
  It absolutely does.
• 9:06
  You can see stronger demand, faster AI productivity adoption, and a real GDP over the normal trend.
• 9:15
  You could also see moderate growth as policy eases and the consumer stabilizes You can see on the downside, a mild recession at the US slows more than expected due to tariffs, restrictive immigration, delayed monetary easing, or renewed focus to bring down current prices.
• 9:35
  What anchors all these scenarios is the consumer.
• 9:38
  If the consumer holds up even modestly, the downside is really limited.
• 9:43
  If the consumer cracks, then you could get that mild recession scenario And the dollar outlook, because that's been another big talking point.
• 9:52
  Yes, the dollar likely weakens into mid 2026 with a possible rebound by year end if the fed cuts earlier in the year, that path does matter for investors.
• 10:04
  A weaker dollar favors emerging markets and commod.
• 10:07
  A strengthening dollar later in 2026 gives you a very different setup.
• 10:13
  So this becomes a year of changing dynamics.
• 10:16
  Exactly.
• 10:17
  Strength, then possible weakness, and then rounding out the year with strength late.
• 10:23
  That's why the positioning decisions we make in the next few months really matter.
• 10:28
  Let's end with the consumer because everything seems to keep coming back to them.
• 10:33
  Yes, and I'll be blunt here.
• 10:35
  The consumer is not all hunky dory, but they're still spending, and that's the tension shaping 2025 into 2026.
• 10:45
  You have wage growth slowing, labor, softening credit costs, still high mortgage rates, elevated savings, interest income is starting to collapse.
• 10:55
  Sentiment near pandemic lows, but at the same time, wealth is up near all time highs.
• 11:02
  Home equity is massive.
• 11:04
  Employment is stable.
• 11:06
  At least enough AI driven tools make bargain hunting easier and consumers absolutely will spend during the holidays.
• 11:15
  So what do you get?
• 11:17
  A consumer that's stressed.
• 11:18
  But not broken.
• 11:20
  A consumer who shops for deals.
• 11:22
  And still shows up a consumer who is price sensitive but not price paralyzed.
• 11:28
  And how do rate cuts play into all this?
• 11:31
  Well, let me make this clear.
• 11:32
  Rate cuts help markets first and consumers last.
• 11:37
  That's the key message investors need to remember when looking at rates cuts.
• 11:41
  Reduce interest income for households immediately while reducing borrowing costs only Slowly, if at all the biggest categories like mortgages.
• 11:51
  Aren't benefiting yet.
• 11:52
  So the consumer release story is a 2026 story and not a December, 2025 story.
• 11:59
  So you're saying the consumer is stuck somewhere in the middle for a while?
• 12:03
  Exactly.
• 12:04
  And that's why I keep framing this as a phased recovery, not a broad one yet.
• 12:09
  Relief is coming, but the bridge between now and then is where the volatility lives.
• 12:15
  Awesome.
• 12:15
  Thanks Scott, as always, myself and our listeners, appreciate your insights.
• 12:19
  Thanks Chris.
• 12:20
  I'll catch you again in two weeks.
• 12:22
  I also want to thank our audience for tuning in and remember to please submit your questions via email to general@paramountassoc.com.
• 12:32
  For now, stay informed.
• 12:34
  Stay ahead and join us next time for more key updates shaping the global economy.