Hope you are all doing well. For the second week in a row, the S&P 500, the Dow, and the NASDAQ posted fractional declines. The former two indexes ended up less than 1% below the record highs they set on January 12, while the NASDAQ was about 2% shy of its historic peak set nearly three months ago. I think we are going to be entering a period of increased market volatility for the next few months. However, in the longer term, the direction of the stock market should be higher as the economy, corporate earnings, and the labor market remain strong. Vanna White got married this week, as such I have broken down this week’s update using Wheel of Fortune Clues.
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It does not look like The State of Greenland will become a reality. While the President envisioned adding a 51st state, he will have to settle for extracting its rare minerals instead. While the market rebounded to produce only a modest decline for the week, it didn’t start that way. U.S. indexes tumbled around 2% on Tuesday in the face of international tensions over Greenland and the related prospect of tariffs or military intervention. The President later announced he had the framework of a deal with Europe. While the framework currently respects Danish sovereignty, the deal includes some important compromises. The framework proposes a significant new NATO mission in the Arctic, dubbed “Arctic Sentry”, to counter Russian and Chinese influence. Importantly, it seeks to restrict non-NATO countries—specifically Russia and China from acquiring mining rights for Greenland’s vast rare earth mineral reserves. Finally, President Trump indicated the deal includes granting the U.S. “infinite” access to Greenland’s minerals, such as copper, nickel, gold, and rare earths. It also allows basing components of the Golden Dome (a proposed U.S. multi-layered missile defense system) to be placed in Greenland.
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Sticky Inflation is an economic phrase we have been hearing a lot. The U.S. Federal Reserve’s preferred gauge for tracking inflation remains modestly elevated as we begin 2026. Core inflation as measured by the Personal Consumption Expenditures (PCE) Index was 2.8% for November, still above the Fed’s long-term 2.0% target. We are still playing catch-up from the government shutdown on the date, as the numbers for both October and November were released together on Thursday. Inflation is not where the Fed would like it to be, but with a strong economy and labor market, the direction for interest rates should remain lower. Most FOMC members were inclined to lower rates further in 2026 based on their interest rate forecasts. I am not sure we will get a rate cut at this coming meeting, but we could see one or two 25 basis point (0.25%) cuts in the front half of this year.
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