Brian Jacobsen, Chief Economist at Annex Wealth Management, joins Remy Blaire to breakdown the economic landscape as we approach the second half of 2025. The S&P 500 and Nasdaq have reached new record highs, despite ongoing trade and geopolitical uncertainties. Inflation remains a concern, with core prices rising 2.7% in May, and the Federal Reserve is grappling with mixed signals from the economy.
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Well, the first half of 2025 turning out to be one for the book.
The S&P 500 and the Nasdaq hitting new record highs as the first half of 2025 came to a close.
Now, despite trade and geopolitical uncertainty, the markets managed to claw back from the post-liberation Day lows.
Inflation has been cooling here in the US, but it's still running above the Fed's target.
Core prices rose 2.7% in May.
With new tariffs taking effect, Fed officials do remain split.
Well, joining me on this Wednesday morning is Brian Jacobson, chief economist at Amex Wealth Management.
Good morning, Brian.
Thank you so much for joining us.
Well, in a week packed with economic data on the labor market, we saw the ADP report showing negative growth in terms of private payroll.
So what is your first take on this data, especially on the heels of the Jolt report yesterday?
Yeah, thank you for having me, and it was really interesting to see that ADP number go negative 33,000.
The last time we were this low was back in March of 2023, and I wasn't too surprised because if you look at the previous report, it was already just barely treading water, and we know that the data for economic activity has really continued to weaken even though we have a little bit more enthusiasm. out of the Trump pause on the tariffs, the tariffs are still there, and it is still affecting activity.
The uncertainty around what may or may not happen has really put a lot of executives in the position of, hey, let's not fire people, but also let's not hire them.
And I think that's one of the things that we really noticed is that you have a very low hires rate.
You also have a very low quits rate and a very low layoffs. rate.
So it's almost as though the labor market has been kind of sucked into a black hole of uncertainty, and it really will take, I think, some trade deals next week if we see any announced passage of the one big beautiful bill from both the House and the Senate for those to take place to be almost like the next catalyst to move not just the markets but also the economy to a more positive growth trajectory.
Yeah, and we know that the central bank is keeping a close eye on all the economic data coming out this week.
Of course, with the 4th of July holiday following on Friday, that means not only do we get non-farm payrolls and unemployment tomorrow morning, but also jobless claims.
So I want to get your forecast for those key data points.
I think for the non-farm payrolls we're probably going to see that come in at close to about 120, 125,000.
I believe the consensus is looking for something a little bit stronger, like 135,000.
But when I saw what the ISM manufacturing number that we got where the employment index in there. showed that employment in manufacturing is contracting at a faster pace than in the previous month.
It's led me to believe that actually 125,000 might be a bit of a stretch goal.
So after that number, I would not be surprised if we see something closer to 110,000.
That would likely get the Fed's attention.
Initial jobless claims, that's the most high frequency economic data that we have out there.
It comes out every week.
It comes out with only a one week leg.
It did improve from in the previous week, but that might tick up.
We get some weird holiday effects around the 4th of July holiday and Actually just around any holiday, so there's going to be a lot of noise in that number, but if it gets up to say 260,000, which I think it could within the next four weeks, that would, in my mind really push the Fed to start cutting rates as opposed to just staying on pause.
Yeah, and Brian, you mentioned the Fed and Fetcher Powell spoke at the annual ECB forum in Portugal.
He stated that he wouldn't rule out a rate cut this month, but as you mentioned earlier, we are not out of the woods just yet with the tariffs deadline looming next week.
So what economic signals are Powell and other Fed officials watching right now and what is your Fed outlook for the rest of 2025?
Sure.
So the next time that the Fed meets, it is later in July, we aren't going to get a lot of data between now and then except for tomorrow's unemployment rate number.
We're also going to be getting another inflation reading with the CPI number and that's really about it.
But I do think that they're going to be highly attuned to any trends that we see in initial unemployment claims.
And continuing claims.
So the initial claims are for when people lose their jobs.
Continuing claims are for people who lost their jobs and are not finding jobs despite looking for them.
And that continuing claims number has been trending up.
It would not be surprising that if we see that trend continue going into that meeting, that maybe they do decide to.
Cut by 25 basis points.
If they don't, I think that there's a high likelihood that when they meet then in September, they could do another makeup cut just like they did last year, where instead of a 25 basis point cut, maybe it's 50 basis points.
So my base case is that for the balance of this year we'll probably see 75 basis points of cuts.
And finally, Brian, before I let you go, all eyes are on the upcoming earnings season.
We recently got the Fed stress test results and we're starting to hear from banks in terms of their dividend hikes as well.
So given that we are embarking upon earnings season, I think it's important for us to break things down by sectors, so we have about 60 seconds here.
Give us an idea of what's on your bingo card.
Sure, so what we're really looking for is continued growth, quarter on quarter increase in earnings, but when we do it year on year, it is a slight slowdown overall but still positive.
Financials, we do really like financials because there was a lot of stress, lots of concerns about the.
Faults, but default rates haven't really begun to tick up.
But from our perspective, tech is still the place where we're probably going to see the strongest growth in earnings.
A lot of people think that maybe we've seen peak earnings for technology, and we don't think that we're at the peak quite yet.
OK, Brian, as always great to talk to you.
Thank you so much for joining us and have a great holiday weekend.
Thank you.
You too.