Let's get to the big story.
Breakdown.
While the major stock averages in terms of stock futures are pulling back following the release of the latest economic data, while volatility returned to the markets this week with the major equity averages pulling back.
Investors selling private credit stocks due to concerns for private loans and in terms of crude oil, we did see elevated trading this week, and we saw.
As well as WTI hit their highest level since last year.
Now there is growing speculation that the US could strike Iran as soon as tomorrow after nuclear talks in Geneva did not pan out as hoped.
And here at home, there is another political factor overhanging the markets.
The Supreme Court could rule today on Trump's tariffs and prediction markets believe the high court will strike down the levees, which could force the to refund hundreds of billions of dollars of tariff joining me to weigh in this morning is Brian Jacobson, chief economist forex Wealth Management.
Good morning, Brian.
Thank you so much for joining me while we got the release of GDP as well as inflation figures this morning.
So in terms of the Fed's preferred inflation measure, what did you make of the reading and what does that tell you about the US economy?
Yeah, thank you for having me.
And when I looked at the inflation numbers, it really was kind of striking to see how there was progress in bringing inflation lower all the way up until April of last year.
And that's the famous Liberation Day event where we did have the imposition of tariffs.
So we were approaching 2% inflation in April, and now we have ended just shy of 3%, so it was moving in the wrong direction.
I think a lot of people were expecting that we would see some inflationary effect from tariffs.
Perhaps it's a little bit more muted than what some people were fearing, but it probably does have the Fed really thinking, you know, we don't want to talk too dovishly when inflation has been trending in the wrong direction lately. and we also got that dip in GDP that pullback for the final quarter of 2025.
So what did you make of that reading and what does that mean for the?
Yeah, I think that the GDP number was really interesting.
Obviously, there are probably distortions from the government shutdown in terms of the data gathering.
So a month from now, we'll probably see some fairly significant revisions, and we don't know if those will be higher or lower.
We do know that when we saw the big drop in government spending, it was the largest decline since about 1972.
And so the federal government shutdown, by my math, probably shaved about 1.4%.
Percentage points off of the headline number and so instead of a 1.4 headline, it's probably would have been closer to about 2.8% points.
There was some decent health from consumer spending and also from investment spending.
And I think that the key message is this past year, so many people have thought that the economy is dependent on artificial intelligence spending, but in fact, the economy is still as it always has been, very dependent on consumer spending.
And that is an area we'll continue to monitor Brian, but I do want to get your take on tariffs.
So you mentioned Liberation Day at the top of the interview and the Supreme Court could rule on tariffs today.
So we'll have to wait and see and investors might feel different about the tariffs now that we did, depending on how the outcome does come out.
So how could the ruling potentially impact the markets here?
Yeah, so the longer that has taken the Supreme Court to release the ruling, the more likely in my mind is that it's going to be very nuanced and very specific in terms of just how complicated the topic could be.
So it's probably fairly divisive, and I think that the ultimate outcome will be saying that the president doesn't necessarily have unfettered authority to impose tariffs because a tariff is a tax, and that is properly within the purview of Congress.
Now, the question then becomes, what about going forward and also rebates or refunds.
So that's where some companies like you probably saw Costco, a number of other ones who were trying to challenge the tariffs so they could get in line to get those refunds, but that doesn't mean that we as consumers are going to be getting any sort of tariff refund, even if the Supreme Court strikes down the authority of the president to impose the tariffs.
Going forward, the president will probably resort or resort to his sector-specific tariff authority or country-specific tariff authority.
Those are more tried and true, so we'll probably have different types of tariffs, but it could take a little bit longer to roll out.
So, I actually think that what the market could react very favorably, but it's not as though it's going to be just off to the races as a result of the ruling.
And we're going to keep a close eye on the nation's capital to see if there are any announcements, but another area that we're keeping our eyes on is geopolitics, and you mentioned energy.
We are looking at the energy sector outpacing all of the other sectors when it comes to the S&P 500.
And yesterday we did see WTI as well as rent futures rise to their highest level in several months.
So tell us the impact of geopolitics, especially when it comes to Iran.
Yeah, so we did see like Brent crude prices increase about 6% this week, a lot of it because of the possibility of some sort of action in the Middle East.
President Trump, he's the only one who knows about the timing and the scope of that type of action.
It probably is just a high pressure campaign in order to get them to the table and to make some sort of uh, concessions.
I think ultimately, that will be, uh, resolved in the sense of coming to some sort of diplomatic solution, but the market is pricing in the risk of it not being a diplomatic solution and instead being more of a military one.
So, I personally would be taking the other side of that trade in terms of the price of oil.
Now, when we Look at energy stocks, those had been beaten down and lagging for so long.
It is nice to see them outperforming, but I'm not confident that we're going to see this outperformance continue on the back of higher oil prices.
It's probably going to have to be a result of more streamline and efficiency, so it's more of a trade as opposed to a long-term investment in my mind.
And Brian, before I let you go, I do want to get your take on private credit.
So yesterday we saw Blue Owl sell $1.4 billion in assets.
So what is your take on this and what's actually happening below the surface?
Yeah, it's an area that we've done a lot of research on.
We do do diligence on a lot of the managers, and so we do invest some in private credit, not a lot, because really, manager selection is really key.
You need to know the covenants, who is it ultimately that's on the hook for those investments.
And one of the costs of investing in private credit is that it's not as liquid, and they're trying to avoid a fire sale.
The sense of trying to dump all of these assets.
And so, it's somewhat similar to what happened, uh, two years ago with some real estate funds, where there were some lockups.
So, that is the price that you pay for these types of loans and these types of investments is the less liquidity and the possibility that they might close the gates and say that you can't get out, even if you want to.
You might have to kind of take your, uh, uh, ticket and wait in line.
Yes, and Brian, finally, before I let you go, it's hard to believe, but earnings season is winding down, and next week we finally get results out from Nvidia.
What can we expect?
Yeah, that's going to be a big market mover, I think, no matter what happens, just given the size of the company and the indices and also its importance in terms of being almost at like the center of gravity of the artificial intelligence and data center boom that we're seeing.
So, any hint of margin compression or Slowdown in spending.
I think it's a little premature to think that we're going to see that slowdown in spending quite yet, uh, especially given what they announced the relationship with Meta in terms of delivering all of those processors, but, uh, it is something that I think a lot of people are waiting with bated breath to see what happens.
Well, Brian, we will have to leave it there, but thank you so much for joining us on this Friday morning and have a great weekend.
Thank you.
You too.
