What We Learned This Week

Inflation Eases, Markets Rise: Stocks got a solid lift this week, thanks to a slightly cooler-than-expected inflation report. Core inflation, which excludes volatile energy prices, rose 0.2% month-over-month, coming in below analysts’ expectations of 0.3%. While the difference may seem minor, it was a welcomed reprieve following recent data pointing to a potentially overheated economy and inflation running higher than the Federal Reserve would like. The softer inflation print had an immediate ripple effect in the bond market, where yields dropped as investors bet the Fed may not need to tighten its approach to monetary policy as aggressively as previously feared.

This data could also ease growing concerns about potential rate hikes in 2025. While inflation remains above the Fed's 2% target at just over 3%, the central bank has signaled a willingness to let it gradually return to target as long as key indicators show improvement. For now, this report provides a bit of breathing room, potentially clearing the way for a more focused look at the health of the corporate environment as we enter earnings season. Investors will be watching closely to see if business fundamentals align with the improving macroeconomic picture.

Banks Signal Business Optimism Ahead: Positive commentary from some of the nation’s largest banks provided another boost to market optimism this week. Major players like JPMorgan, Goldman Sachs, and Wells Fargo reported solid fourth-quarter earnings, reflecting healthy loan books and strong trading operations at the investment banks. Beyond the headline results, what stood out was a noticeable shift in CEO sentiment following Trump’s win in November. David Solomon, CEO of Goldman Sachs, highlighted this change during his earnings call, noting broad-based optimism among clients about a more business-friendly environment paired with a stable economic backdrop.

For Goldman, this renewed sentiment could signal an uptick in IPOs and deal-making activity—areas that have been relatively dormant since the post-pandemic inflation scare. On a broader scale, a stronger deal-making environment often fuels corporate confidence, potentially spurring larger investments in expansion and boosting economic activity. While this momentum is promising, the long-term impacts—particularly on inflation—will need to be watched carefully. History has shown that a strong business investment environment can coexist with controlled inflation (e.g. 2016-2019), but maintaining balance in the broader supply-demand equation will be key as things pick up.

Tech Stays Disciplined Amid AI Boom: This week brought more measured updates on hiring trends from major tech companies. Facebook announced plans to lay off 5% of its workforce, aiming to streamline operations and improve adaptability in a shifting landscape. Meanwhile, Microsoft revealed a hiring freeze in select divisions to better align resources with strategic priorities. These moves reflect a continuation of the hiring discipline seen across industries over the past couple of years, as companies recalibrate after the post-pandemic boom and return to more sustainable growth levels.

Encouragingly, this prudence persists even amidst the robust growth in mega-cap tech fueled by AI innovation. It’s a reminder of the inflationary pressures caused by widespread overhiring during the pandemic, when unrealistic growth expectations drove wage inflation to historic highs. By maintaining a cautious approach, these companies demonstrate a commitment to sustainable cost management, which bodes well for long-term investor confidence. While job cuts are never easy news, they are often necessary to ensure organizations remain well-positioned, especially if growth moderates in the future.