This Week in Review | US Inflation, US-China Visit, Fed Chair Confirmation

Transcript

Ben Thistlethwaite:

Hello and welcome to This Week in Review. This is a weekly segment designed to highlight a few important developments you may have missed this week. We'll talk about what they mean for markets and most importantly, the potential impact for investors. To stay up-to-date with all of our latest market insights, subscribe to our YouTube channel or visit FisherInvestments.com. Now, let's review what happened this week.

First, an update on April US inflation. On Tuesday, the Bureau of Labor Statistics released the latest US Consumer Price Index data. The report showed headline inflation rose to 3.8% year-over-year in April. This reading was both above consensus forecasts and the highest rating since May of 2023. Core inflation, which excludes food and energy, rose to 2.8%, and that's up from 2.6% in March. We all know rising everyday expenses create real stresses for our families, friends and households. Everyone feels the pain at the grocery store or the gas pump. And while some inflation is normal in a growing economy, lately, there's been a growing perception that we might be seeing another wave of runaway inflation coming our way, maybe fueled in part by higher energy prices. To us, however, the conditions for a renewed round of inflation really just aren't in place, and our reading of market-based indicators suggests that inflation should remain contained. We believe inflation fears are another brick in the "Wall of Worry" that stocks love to climb. As we noted in our recent MarketMinder article, this isn't 2022, when a brief spike in oil and gas prices coincided with already-hot inflation. That period had a key ingredient missing today, a prior surge in money supply during the Covid lockdowns, the Federal Reserve and global central bankers sharply expanded broad money supply, in some cases raising money supply by 30% year-over-year. So while sharp rises in some prices are frustrating, they're not indicative of widespread inflation or a destruction of purchasing power. For stocks, what matters most is how actual data compares with investor expectations. How are companies and consumers navigating some of the higher prices? We see room for reality to come in better than widely feared, which should be bullish for stocks.

Next, President Trump visits China. All eyes were on President Trump as he arrived in Beijing on Wednesday for a summit with Chinese President XI Jinping. The meeting drew significant investor attention amid the ongoing geopolitical and economic tensions. Specifically, talks touched on tariffs, rare earth metals, AI, semiconductors, Taiwan and the conflict in the Middle East. To us, the event highlights a key concept. While political rhetoric between the US and China sometimes gets intense, the two nations remain deeply economically interconnected. This kind of interdependence can actually create incentives for cooperation, even when there's a backdrop of geopolitical tensions. Now, it's impossible to say if meaningful policy agreements emerge from the summit. We encourage investors to stay levelheaded and avoid making reactionary or short-term investment decisions based on headlines alone. Markets may quickly respond to US-China developments, but meaningful political negotiations typically take time and unfold gradually. Dialogue between the world's two largest economies is a positive that likely reduces uncertainty over time.

Finally, the Fed chair confirmation. The US Senate confirmed Kevin Warsh to the Federal Reserve's Board of Governors on Tuesday. It then voted 54 to 45 on Wednesday to elevate him as the next Fed chair. That decision finalizes a process that began almost a year ago. Warsh will succeed Jerome Powell, who President Trump appointed as Fed chair in 2018. When it comes to stocks, we think the Fed chair is a lot less impactful than headlines might suggest. Monetary policy just doesn't hinge on one individual. Rather, the 12-member Federal Open Market Committee sets policy collectively, limiting the impact of the Fed leadership shift and serving as a stark contrast to the media conversation on how Kevin Warsh influences rate policies. Watch what they do, not what they say. History shows that new Fed chairs' actions and policy positions often really differ from what they told Congress during the nomination process. Right now, we think the continued focus on the new Fed chair and concerns about Fed independence and speculation over future interest rates really overshadows broader economic positives, and that healthy fundamentals likely drive this bull market further.

That's it for this week. Thanks for tuning in to This Week in Review. If you're looking for more insights, then don't miss our other series Three Things You Need to Know This Week. It's released every Monday. You can also visit FisherInvestments.com anytime for our latest thoughts on markets. Thanks again for joining us, and don't forget to hit like and subscribe.