It’s essential to keep up with market and economic factors that may impact our investing strategy. If you don’t, you could be in for a rude awakening one day when you check your portfolio.
Different sectors perform better or worse in different economic climates. We know it’s a lot to keep up with and annoying to dig through all the media nonsense, so here is an update on the important highlights and what they means for us.
The Manufacturing Sector Is On The Decline
Manufacturing data that has come in for December is not good, not good at all. A sector that accounts for 10% of the economy is at its lowest levels in almost 5 years.
Why?
Because tariffs, no matter how they are spun by “experts” and the media, are not the greatest thing ever. Fear of tariffs making it vastly more expensive to import raw materials caused the manufacturing PMI to drop from 49.7 to 48.3.
That’s a huge drop, and I don’t foresee this getting better anytime soon. Any number below 50 means the sector is contracting. Even worse, actual production at factories came in at 46, down from 47.9 last month.
While some suggest that these tariffs make for good bargaining chips, the reality is that they’re going to kill portions of our economy. So I suggest being prepared to pivot if you haven’t done so yet from manufacturing into something that has more potential.
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Service Industries Will Expand
Service industries on the other hand, shot up from 54.9 to 56.6. Fewer regulations means more opportunities for profit. Combine fewer regulations with an anticipated tax cut, and you have a sector that is very happy right now.
Personally, I like manufacturing more than service, as I’d rather have us build stuff, but that’s me.
Retail Is Still Up
Retail sales popped off in November, with an increase of 0.7%. Auto parts and online sales were the biggest gainers with 2.4% and 1.8% increases MOM (month over month) respectively.
This shows the consumer is still spending, and spending a lot.
The FED’s Interest Rate Cuts
The FED, as expected, cut interest rates 0.25%. This is the third cut, when the “experts” projected 6 cuts at the beginning of the year…
Going forward the FED anticipates 2 0.25% cuts in 2025 and 2 0.25% cuts in 2026 and 1 0.25% cut in 2027. This caused the markets to tank. Seems the “experts” were hoping and predicting the cuts would be many more. I think this means for sure no Santa Claus rally this year.
Digging further into the FEDspeak, they project inflation to settle in the 2.4% to 2.8% range, which is what I’ve been saying. If the objective is the 2.0% range, cuts never should have happened in the first place.
The FED also sees GDP growing at 2.5% next year, before slowing to the 1.8%-2.0% range for 2026 and 2027. Finally, the FED sees unemployment going up to 4.4% in 2025. There is a lot to unpack here, so…
What Does This All Mean?
2025 looks to be rosy, but then everything will go into a slight decline in 2026 before a larger decline in 2027. This is something to keep in mind when investing. We need to start getting more defensive in 2025 so that we’re prepared for 2026 and 2027.
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