A Philedalphia Curse?
Markets rebounded a bit this week despite economic data that was below expectations and further talk of tariffs. There appears to be a bit of investor fatigue around all the headline news that tends to focus on everything that could go wrong. I don’t blame the media since these sensational headlines drive traffic and generate advertising revenue. And while the economic data did show some cracks this week, it seems investors are for now disregarding this data.
Perhaps the most consequential news was found in the January Consumer Price Index (CPI) which rose by the most since August 2023, led by a range of household expenses like groceries and gas, as well as housing costs. Excluding food and energy costs, core CPI rose by 0.40%, fueled by car insurance, airfares, and a record monthly increase in the cost of prescription drugs. Since the end of the pandemic, we’ve seen a pattern of companies raising prices in January to start the new year. It is believed expectations have not included seasonality properly and some economists believe the jump in price growth last month won’t be repeated going forward. Still, Wednesday's report serves as evidence that inflation progress has at least stalled and will likely keep the Fed on hold for the foreseeable future.
Despite what I said above about dour headlines news, there are some signs that economic strength is beginning to wane. U.S. retail sales posted their biggest drop in nearly two years in January, likely weighed down by frigid temperatures, wildfires, and motor vehicle shortages. The Commerce Department reported today that this reflects a shift in consumer spending as it comes on the back of four consecutive months of hefty increases. Like the CPI report above, economists have noted it is difficult to strip out seasonal swings from the data at the beginning of the year. However, there is no shortage of speculation from severe weather and wildfires to pre-emptive buying in anticipation of tariffs. We will need to wait until the February data is released to see if this is the start of a more cautious consumer trend or indeed whether it was simply a weather-related pullback.
In company news, if you’ve ever used Zelle you are not alone. The money transfer service allows you to send and receive money with others using your bank account. This bank-owned platform said its payments volume exceeded $1 trillion last year. Seven banks, including JPMorgan Chase, Bank of America, and Wells Fargo, launched Zelle in 2017 to take on popular money-sharing apps like PayPal, Venmo, and CashApp. Worth noting is that these platforms are technically considered technology companies and are therefore not regulated to the same extent that banks are. Just this week Jerome Powell, in his testimony to Congress, called out the inherent risk since the Federal Reserve has no jurisdiction over these types of firms. My recommendation is to use these platforms for convenience, but not to leave cash on them longer than necessary.
And lastly, the trend of layoffs in the technology sector appears set to resume. While we haven’t seen mass layoffs in other sectors, the tech sector has been in a bit of a downsizing phase for the past year. Over 150,000 jobs were lost across 542 companies in 2024, including layoffs at companies like Amazon, Microsoft, and Tesla. In keeping with this trend, Meta announced this week that it plans on laying off 5% of its workforce as it diverts resources toward AI. It isn’t the first company to announce layoffs this year. Others include Workday, which is looking to cut 8.5% of its staff, also to prioritize AI while Salesforce is reportedly laying off more than 1,000 employees for the same reason. Google is offering buyouts to employees working on its platforms and devices teams to focus on AI. In case you didn’t pick up on it, AI appears to be gaining momentum across Silicon Valley.
In closing, I return once more to the Super Bowl indicator. First introduced in 1978, it suggests that if an AFC team wins the Super Bowl, a bear market will ensue. If an NFC team wins it means the stock market will be in a bull market for the coming year. No, I do not put any faith in this indicator. In case you didn’t know, the Eagles play in the NFC and won last weekend. However, before you begin celebrating there is a tiny wrinkle. Philadelphia may have a curse. In 2018, when the Eagles last won the Super Bowl, the S&P 500 finished the year down 6.24%. When the Philadelphia Phillies last won the World Series in October 2008, we saw the start of the global financial crisis. The Philadelphia Flyers’ Stanley Cup win in 1974, saw a 29.72% decline in the S&P 500. The only good news is when the Philadelphia 76’ers won NBA titles in 1967 and 1983, both years were solidly higher. Now you know.
Bruce J. Mason, MBA