Latest / Markets with Megan: A Quick Financial Markets Update / ISM Services Index Shocker: What Rising Prices Mean for the Economy | S2 E001 | 01-07-2025

Transcript

ISM Services Index Shocker: What Rising Prices Mean for the Economy | S2 E001 | 01-07-2025 · Markets with Megan: A Quick Financial Markets Update

• 0:02
  Megan Horneman: Hello and welcome to 2025.
• 0:05
  Megan Horneman: We have made it.
• 0:05
  Megan Horneman: This is Megan Horneman, the Chief Investment Officer for Verdant's Capital Advisors, and you're listening to Markets with Megan.
• 0:12
  Megan Horneman: This year, we're going to take a little bit of a different spin on how we deliver information to you.
• 0:17
  Megan Horneman: First of all, we're going to continue to look at the economic data that comes out on a regular basis, but we're going to dive in a little bit deeper to what that only means to the market reaction that day.
• 0:28
  Megan Horneman: But what does it mean for the future?
• 0:29
  Megan Horneman: What does it mean for our outlook on different investment classes?
• 0:33
  Megan Horneman: What does that mean for asset allocation and, specifically, what does that mean for the economy and the Federal Reserve?
• 0:40
  Megan Horneman: These are things that we want to delve a little bit deeper into this year.
• 0:43
  Megan Horneman: We also welcome questions or comments.
• 0:45
  Megan Horneman: Wherever you get your podcasts, there typically is a comment section, but you can also send questions or comments through to podcast@ verdence.
• 0:53
  Megan Horneman: com.
• 0:54
  Megan Horneman: So let's kick it off today.
• 0:55
  Megan Horneman: It is Tuesday, january 7th, and we got some information this morning from the ISM Services Index, and what this index is is it's an index that measures the activity in the service sector.
• 1:07
  Megan Horneman: What is the service sector?
• 1:09
  Megan Horneman: This is where Americans spend the majority of their money.
• 1:12
  Megan Horneman: Now we've talked about how the consumer makes up the majority of US GDP and, within that, spending.
• 1:18
  Megan Horneman: The majority of where we spend it is in services.
• 1:21
  Megan Horneman: So think about getting your haircut, getting your lawn mowed, the streaming services, your cell phones all of these things are service related items that continue to put pressure on inflation.
• 1:32
  Megan Horneman: It's what is considered sticky inflation, because these are things that people really can't do without.
• 1:38
  Megan Horneman: Now, in this ISM services report today, let's go into the details here.
• 1:42
  Megan Horneman: The index did rise.
• 1:43
  Megan Horneman: It now continues to be in expansion territory, so services are still firing on all cylinders.
• 1:49
  Megan Horneman: Within that report, some of the components of that just broad business activity rose at a solid pace.
• 1:57
  Megan Horneman: We also saw increases in deliveries, as well as the inventory changes, but where the frightening part of this was the big jump we saw in prices paid.
• 2:07
  Megan Horneman: So this is the prices that you're paying for your services.
• 2:10
  Megan Horneman: This jumped to the highest level since 2023, and it continues to trend higher.
• 2:16
  Megan Horneman: This is something the Fed's gonna be concerned about.
• 2:19
  Megan Horneman: So what had happened today in the markets?
• 2:21
  Megan Horneman: What happened today is we saw interest rates rise.
• 2:24
  Megan Horneman: Why did they rise?
• 2:25
  Megan Horneman: They rose because now the expectation for Fed rate cuts is basically completely off the table for the month of January.
• 2:32
  Megan Horneman: There was a chance it would be, but now, after this report, definitely off the table for now.
• 2:37
  Megan Horneman: We saw equity markets take a bit of a hit, but specifically information technology, consumer discretionary communication services these parts of the market that have rallied so much as consumers that continue to spend as inflation was coming down, as the Fed was cutting interest rates.
• 2:54
  Megan Horneman: That's not happening anymore.
• 2:56
  Megan Horneman: We're showing inflation pressures may be picking back up again.
• 2:59
  Megan Horneman: The Fed isn't going to be able to cut interest rates, so this is going to put pressure on the consumer in the first half of 2025.
• 3:07
  Megan Horneman: Now the one thing we also say about economic reports they tend to be market moving.
• 3:11
  Megan Horneman: We don't take one month as a trend.
• 3:13
  Megan Horneman: We do want to see consistent months where this has been elevated, and we have seen this in the ISM services.
• 3:21
  Megan Horneman: So it's definitely something the Fed's going to take a look at Now.
• 3:29
  Megan Horneman: Going forward, we think that this is going to be a theme throughout 2025.
• 3:32
  Megan Horneman: This inflation story is going to be back and forth.
• 3:33
  Megan Horneman: Typically, inflation comes and goes in waves.
• 3:34
  Megan Horneman: We saw that in the 70s and 80s.
• 3:36
  Megan Horneman: It's never a perfect decline down and then stays low.
• 3:39
  Megan Horneman: We tend to see that it can be reignited and we're getting some signs that that's happening right now.
• 3:44
  Megan Horneman: This is going to continue to create a volatile environment for equities throughout this year.
• 3:48
  Megan Horneman: Bonds are typically going to be weaker on this type of information because inflation does lead to higher bond rates.
• 3:55
  Megan Horneman: But the valuations in the market it's going to hit those areas of the market that have the highest valuations and, as we said, it's been technology.
• 4:03
  Megan Horneman: Today it's been communication services.
• 4:06
  Megan Horneman: These are areas that are expensive rightations and, as we said, it's been technology.
• 4:06
  Megan Horneman: Today it's been communication services.
• 4:06
  Megan Horneman: These are areas that are expensive right now and these are the ones that are taking that valuation hit.
• 4:12
  Megan Horneman: That's all we have today, but it is a very busy holiday, shortened week.
• 4:16
  Megan Horneman: We will see that.
• 4:18
  Megan Horneman: We'll get the employment report on Friday.
• 4:20
  Megan Horneman: That's gonna be the most important report that we'll get.
• 4:22
  Megan Horneman: We'll also get some more information tomorrow on job cuts, as well as the ADP, employment change and initial jobless claims.
• 4:32
  Megan Horneman: So we'll be back some more this week to give you some more insights into what we see from this economic data and what it means for the kickoff to 2025.
• 4:40
  Megan Horneman: Thank you again.
• 4:42
  Megan Horneman: If you like this podcast, please subscribe.
• 4:45
  Megan Horneman: Hit that alarm bell and if you want to see the history of our podcasts, you can go to marketswithmegan.
• 4:50
  Megan Horneman: fm.
• 4:51
  Megan Horneman: Thank you.