A sigh of relief in Switzerland

Last week was a volatile holiday-shortened stretch for US markets. Initially, stocks fell and Treasury yields jumped as investors braced for another round of geopolitical tension ahead of the World Economic Forum. Fortunately, President Trump’s Wednesday address at Davos, Switzerland, seemed to temporarily calm nerves and helped send stocks rebounding higher and yields lower. Still, investors are bracing for more turbulence; gold and silver reached new highs again last week, signaling relentless demand for havens.

The latest data points continue to support a broadly resilient US economy. Third quarter real GDP growth was revised slightly higher to a healthy 4.4%. Consumers are also growing more comfortable with the environment as the University of Michigan sentiment index rose to 56.4, its highest reading since August. Personal spending was also robust, rising 0.5% month-over-month in November, in line with expectations. It increased at the same pace in October, a positive surprise.

Inflation, however, remains above the Fed’s 2% target. The latest reading of the Core Personal Consumption Expenditures Index, the Fed’s preferred inflation metric, showed an increase of 2.8% year-over-year. The Fed meets this week, and while no policy action is expected, investors will be paying close attention to how Chair Powell chooses to navigate a wide set of challenges from the path of monetary policy to recent legal matters.