Punxsutawney Phil is Wrong
Welcome to February and happy Groundhog Day. It looks like there will be 6 more weeks of winter.
It’s only appropriate that we will have 6 more weeks of winter as that usually means we will be bunded up, in front of a fire, with snow and limited visibility outside with hopes and dreams for a prosperous spring.
Right now, I think we are all huddled inside thankful we have invested, thankful we have saved, but we have little visibility in this snowstorm beyond a few days to weeks. Just like Punxsutawney Phil, the forecast for the next 6 weeks is probably more of the same. Bundle up, stay warm, and be ready for the spring!
So here we go-items I am watching, impacts to the market, and factors driving the economy.
First, tariffs are now in effect on Canada and Mexico at 25% and China at 10%. I have not been bearish on tariffs as I see them as either short-lived or positive for our economy if these nations do not change their trade habits. There is nothing these countries make or produce that we didn’t make or produce at one time in the past. They benefitted from lax or in some cases harsh employment practices, keeping labor costs low, disregarded the environment, polluting their rivers and streams, keeping production and disposal costs low, or blocked their economy to US products. I could go on, as the list is long for these countries. In the short term, the markets are going to try to adjust to the different sectors that are more exposed than others; oil and gas and automotive to name some of the easy ones. Cheap electronics on Amazon are going to be more difficult to quantify. Joking aside, these tariffs will likely have a short-term impact on the downside, but I do expect a positive bounce when they start showing positive results.
Second, AI. It was quite interesting when DeepSeek AI, a Chinese AI firm, posing as a “startup”, which most of us in the Federal service is a joke claimed to generate AI responses on par with some of the most advanced AI services in the US at a fraction of the GPU requirements. This hit NVIDIA hard and as a result hit the stock market almost as hard. DeepSeek AI is already being exposed for the sham it is. The results I have seen and the speed at which is generates them show the lack of GPU processing. AI is only going to become even more pervasive and GPU demand will continue to increase. While I’m talking about just one stock here, it is likely that an NVIDIA rebound will occur.
Federal Reserve and Inflation. Of course, these two always go hand in hand. The Federal Reserve decided to keep rates steady, but January saw an uptick in inflation to 3.3%, well above their inflation target. I find the inflation increase a bit of a concern. 3.3% is not good. Some are saying the inflation rate ticking up is in response to tariffs, but if they weren’t enacted until February, then the January inflation rate. If inflation remains high, the Federal Reserve will likely cut rates but in a delayed fashion, potentially impacting the economy. Inflation is tricky.
Finally, DOGE. I know many of us are probably being impacted by DOGE. With a targeted goal of $4B in federal spending cuts a day, there are bound to be significant impacts across all of the US. I do not expect to see short term economic or stock market impacts from DOGE soon. Much of this money they are saving is printed and is thus inflationary. However, it takes a long time for it to enter the economy and have an inflationary effect. Long term, however, less inflation, less taxes, and less waste will equal a stronger economy with value added production. Those Federal employees that take the buy-out can enter the commercial market and do great things – start a business, grow sales at a software company, invent new machines. Those impacts are long term and cannot be quantified, but I expect them to be positive.
So, while it is forecasted to snow and visibility is close to zero, I expect Phil to be wrong by a few weeks and for use to have an early Spring.
I’m staying in the C Fund 100%. Keep investing!
