3 Things You Need to Know This Week | Consumer Confidence, US Inflation, Gold (Aug. 25, 2025)

Transcript

Tom Kirby:

Hello and welcome to 3 Things You Need to Know this Week. Our regular series designed to help you sift through the noise across financial media and understand what really matters for markets. To stay up to date with our latest market insights, subscribe to our YouTube channel or visit FisherInvestments.com. And with that, Here are three things you need to know this week.

First, a look at consumer confidence.

This week we get consumer confidence data for August from the US and the eurozone. Consumer confidence on both sides of the Atlantic have been a mixed bag this year. While US investors entered 2025 on an optimistic foot, their European counterparts were significantly more pessimistic amid concerns over US tariffs, tax hikes in Britain, France's budget challenges and a February snap election in Germany. All this negativity contributed to lower economic and earnings projections for Europe compared to the US. The market correction earlier this year was another hit to sentiment.

And while US consumer confidence has improved as markets recovered and reach new all-time highs, European and British sentiment has remained fairly negative. As we often say, it's the difference between expectations and reality that matter most for stocks. Reality doesn't need to be perfect, just better than expectations. While many still focus on tariffs and Europe's headwinds, economic reality continues to consistently exceed pessimistic expectations. To us, this gap between downbeat investor expectations and economic reality should continue to support European stock leadership going forward.

Next, the US inflation report. On Friday, we'll receive the latest data on the Fed's preferred inflation gauge: personal consumption expenditure, or PCE. This may offer some more insight into the state of the US economy. Recent readings from the separate consumer price index inflation measure have remained below its long-term average of around 3% year-over-year. Looking ahead, we anticipate inflation will remain relatively moderate. A lot of attention will be on how this latest inflation reading may influence the Fed to cut interest rates during their upcoming September meeting. Over the past few months, PCE has risen slightly while job growth slowed and the unemployment rate has edged up some since the beginning of the year, though it remains low by historical standards.

Because of this, some analysts believe the Fed might be more likely to consider cutting interest rates. Beyond PCE, some are concerned about the recent spike in producer prices, claiming businesses are starting to see higher prices that will eventually trickle down to consumers. But so far, companies appear to at least partially absorb whatever tariff costs are coming their way. Could that change in a couple months? Perhaps. But for now, some compression in producer margins isn't surprising. More importantly, history shows producer and consumer prices tend to move in tandem, and one doesn't really lead the other. So, we wouldn't read anything into one month's divergence, much less what it means for Fed officials thinking. Particularly given that the economy and stocks don't hinge on interest rates alone.

Finally, investing in gold.

Gold has been on a hot streak lately, hitting several all-time highs this year. Some think the gold rally will continue thanks to geopolitical uncertainty, inflation and central banks buying gold. That could happen. But to us, it isn't a foregone conclusion that gold prices will keep rising. And we caution long-term investors from rushing out to add gold to their portfolios. Consider the geopolitical uncertainty caused when Russia first invaded Ukraine in 2022. Gold prices surged initially before largely sliding for the rest of the year. So, geopolitical uncertainty by itself isn't a reason to buy gold.

Well, what about gold as an inflation hedge? There is plenty of historical precedent where inflation has outpaced gold prices. And if you're counting on central banks to drive up gold prices. Yes, their gold purchases can reduce supply and temporarily push up prices, but they can also change course at any point. And Fed actions aren't necessarily a reliable driver of future gold prices. To us, gold prices largely depend on sentiment, not economic fundamentals. And we think that trying to predict swings in sentiment isn't a good strategy for long-term investors.

And that's it for this episode of 3 Things You Need to Know this Week.

For more of our thoughts on markets, check out This Week in Review, released every Friday. You can also visit FisherInvestments.com. Thanks for tuning in and don't forget to hit 'like' and 'subscribe!'