To The Moon

Last week saw two inflation reports released, after US jobs reports were out, the week before. Click here ! to read about US jobs market post (give a like ok - Thanks). The two inflation reports were: 13 Jan 2026 - Consumer Price index (CPI) for December 2025. 14 Jan 2026 - Producer Price index (PPI) for November 2025. What December CPI revealed ? The December 2025 Consumer Price Index (CPI) released by US Bureau of Labour Statistics (BLS) suggests that while "inflation fever" has broken, the descent to the Fed’s 2% target remains at large and elusive. Overall, the report highlights a stabilizing trend, with both headline and core figures largely meeting market expectations. (see below) US CPI - past 6 months Headline vs Core: Headline inflation (annual) held steady at 2.7%, the same rate recorded in November 2025. Meanwhile, Core inflation (annual) edged down slightly to 2.6%, marking its lowest annual level since early 2021. Key Drivers: Shelter costs (up +0.4% monthly) and food prices (up +0.7%) were the primary upward pressures. These were partially offset by a decline in gasoline prices (down -0.5% monthly) and used vehicle prices. US’s 2025 CPI. Looking at the full year of 2025, the US economy has entered a phase of "sticky normalization". (see below) US CPI, Jan - Dec 2025 Inflation has cooled from the 9.1% highs (2022) to the high-2% range. Supply chain shocks and pandemic-era "revenge spending" have largely dissipated. However, the 2% Fed’s inflation target is proving difficult because of services inflation. While price of goods is falling, the price of essentials (eg. rent, medical care, and restaurant meals) remains elevated due to (a) tight labour market and (b) rising wages. Overall, 2025 is characterized by data volatility caused by the 43-day government shutdown in autumn, that delayed reports and made it harder for the Fed to see the "true" trend until the December 2025 release. CME Fedwatch Tool. As of 20 Jan 2026, the CME FedWatch Tool indicates that the market has almost entirely abandoned hopes for an interest rate cut at the upcoming 28 Jan 2026 FOMC meeting. (see below) CME Fedwatch Tool - as of 20 Jan 2026 Instead, investors are pricing in a overwhelming probability that the Fed will maintain the current rate at 3.50%–3.75%. Minutes from Fed’s December 2025 meeting revealed deep divisions among officials. Some members were advocating for a pause to assess the impact of 2025's cuts and the market is betting the "Wait and See" camp will win the vote this January. Like it or not, Wall Street’s analysts are also of the consensus that US central bank will pause interest cut in January 2026, as well. What November PPI revealed ? On 14 Jan 2026, US Bureau of Labour Statistics (BLS) released the delayed November 2025 Producer Price Index (PPI). This report was highly anticipated as it helped clear the "statistical fog" created by the 43-day government shutdown that occurred earlier in the autumn of 2025. The data revealed a "split" narrative: (see below) There was a surge in wholesale energy costs. And it was countered by a surprising cooling in core services. PPI and Core PPI - November 2025 The headline PPI of +0.2% increase was driven almost entirely by goods, that jumped by +0.9%. This was the largest monthly gain for goods since early 2024 and it was propelled by a 4.6% spike in energy costs (specifically a +10.5% surge in gasoline). Despite energy surge, "Core" PPI (ex volatile food and energy), remained flat (0.0%). This undershot the 0.2% forecast and indicated that underlying inflationary pressure at the factory gate is not yet spiraling. Interestingly, both headline and core annual rates reached 3.0%, moving further away from the Fed’s 2% comfort zone. Deductions from past 11 Months Analyzing the 2025 data, we can deduce 3 key themes regarding producer inflation: Throughout 2025, energy has remained a "wildcard," frequently causing monthly spikes that mask a broader cooling trend in other sectors. While goods prices have fluctuated, service provider margins (represented by the "trade" component of PPI) actually fell -0.8% in November 2025. This suggests that intense service-side inflation seen in 2024 is beginning to soften. After rapid declines in 2024, the "final mile" has seen inflation plateau near 3%. The "easy wins" on supply chains are over; further progress now depends on slowing wage growth and lower energy costs. Will Fed cut interest rate? Despite the decent November PPI and December CPI reports, the Fed is unlikely to trim interest rates at the January 28–29, FOMC meeting. Most analysts already expect a "hawkish pause". Why the Fed will likely "pause": Fed Chair Jerome Powell has recently signaled that current rate (3.5%–3.75%) is already within the "neutral” range. Meaning it is no longer actively slowing down the economy and there is no urgent "fire" to put out with a cut. The fact that annual producer inflation (both headline and core) is now back at 3.0% is a "red” flag" for a central bank trying to reach 2.0%. Cutting rates while annual PPI trend is moving upward could be seen as premature. The Fed typically "looks through" energy spikes. However, with gasoline up 10.5% in a single month, the Fed will want to see if these costs pass through to consumer prices (CPI) before easing further. With headline CPI inflation still at 2.7%, cutting interest rate now might signal that the Fed has given up on its 2% target, that could de-anchor inflation expectations. Also, the Fed has recently raised its 2026 GDP growth forecast to 2.3% - this strong economy gives the Fed the luxury of waiting to ensure inflation does not "bounce back." Last but not least, having already cut rates significantly in late 2025, the Fed funds rate is now near "neutral". There is no immediate economic emergency requiring a cut, not when with US labour market still showing resilience. Summary. Given US underlying economic strength and headline inflation plateauing at 3%, the Fed is expected to remain data-dependent and maintain rates in January 2026, as recent CPI and PPI readings lack conviction to justify a 4th consecutive cut. US Economy and US Stock Market. The US economy and US stock market exist in a symbiotic cycle. Robust consumer spending and GDP growth fuel US corporate earnings that drive share prices higher. Simultaneously, the resulting "wealth effect" from rising portfolios encourages households to spend more, further energizing the real US economy. Besides the inflation reports, it is equally important to take a glance at US Budget deficit report out on 14 Jan 2026. What is the Budget Deficit report? It is officially known as the Monthly Treasury Statement (MTS), a monthly financial document issued by the Bureau of the Fiscal Service under the US Treasury Department. It acts as the "official scorecard" for the federal government's monthly spending and revenue. December 2025 Budget Report: The federal government reported a $145 billion deficit for the month of December 2025 alone. While this looks like a sharp +67% YoY increase from 2024, the reality is slightly more nuanced due to calendar shifts. Quarterly Snapshot (FY Q1 2026): For the first three months of fiscal year 2026 (Oct–Dec 2025), the total deficit reached $602 billion, down by $109 billion or about -15% YoY. Revenue Surge: Receipts totaled $1.2 trillion for the quarter, this is up +13% YoY. ‘Growth’ was driven by (a) higher wage-tax collections and (b) a massive +332% jump in customs duties (tariffs), that brought in $90 billion compared to $20.8 billion a year ago. (see below) Expenditure Reality: Equally impressive is spendings by the US government. Outlays for the quarter hit $1.827 trillion; that is up by +$33 billion or +2% YoY. Even with a temporary spending dip in October/November 2025 due to the government shutdown, underlying costs for (a) Social Security, (b) Medicare, and (c) Defense continued to climb. Additionally, interest on US government debt rose by $179 billion (up +15% YoY). Interest as a share of spending, has grown to more than $1 out of every $6.50 spent. What the report says. The 13 Jan 2026, Treasury report confirms a negative fiscal outlook characterized by a persistent structural imbalance. The core concerns remain the "snowball” effect of the national debt: Interest Burden: Net interest payments have surged to $276 billion for the quarter, becoming the 2nd-largest federal expense and surpassing national defense spending. Revenue Volatility: A record $90 billion in customs duties (up +322%) provided a temporary cushion, but analysts warn this stream is vulnerable to trade fluctuations. Unsustainable Trajectory: With debt-to-GDP hovering around 124%, the government is essentially borrowing to service existing debt, leaving minimal fiscal space for future economic shocks. The report reveals a "treading water" US economy where record revenues are being consumed by skyrocketing interest costs, keeping the US on a path toward a $2 trillion annual deficit. US interest burden is becoming a runaway train. The Trump government can likely "sit" on this for another 3–5 years, but the window for a "soft landing" through gradual budget cuts is closing rapidly as interest costs begin to eclipse major programs. US Market Top Performing Sectors. How does an individual investor (like me) navigate and maintain profitability, In light of these “depressing” reports ? One thing I do is look at the SPDR sector funds performances and here I am sharing my findings. Top 3 Performing SPDR Sectors (Mid-January 2026) The past week saw a distinct rotation away from "high-growth tech" and into "tangible assets" and "value." Even the Magnificent 7 were not spared. (see below) Pullback since Week of 12 Jan 2026 Based on the latest YTD performance dashboards, the top three sectors to focus on are: (1) $Materials Select Sector SPDR Fund(XLB)$ As inflation plateaus at 3%, investors are flocking to "hard assets". Gold and silver reached record highs this week, boosting the materials sector. (see above) Linde PLC (LIN): Global leader in industrial gases. Tension: Exposed to European energy costs, but highly resilient. Freeport-McMoRan (FCX): Major copper/gold producer. Tension: Copper is essential for the "AI Power Grid" expansion, but mining is sensitive to global trade tariffs. $Newmont Mining(NEM)$ : Largest gold miner. Tension: Safe haven play as geopolitical risks in the Middle East and Venezuela persist. (2) $Energy Select Sector SPDR Fund(XLE)$ Driven by the +4.6% monthly spike in PPI energy costs and supply concerns, this sector has become a primary hedge against "sticky" inflation. (see above) ExxonMobil (XOM): Dominant integrated player. Tension: Facing political pressure over "excess profits" during the recent gasoline spike. Chevron (CVX): Strong cash flow and dividend. Tension: Heavily scrutinized for its operations in South America amid regional border disputes. $ConocoPhillips(COP)$: Pure-play explorer. Tension: Sensitive to any sudden Fed "pause" that might slow industrial demand for oil. (3) $Industrial Select Sector SPDR Fund(XLI)$ Industrials are benefiting from a "Capex Revival". Even when interest rate is still “high”, the push to build AI data centers and domestic chip factories is keeping order books full. Caterpillar (CAT): Direct beneficiary of US infrastructure spending. Tension: Highly sensitive to U.S.-China trade relations. General Electric - GE Aerospace (GE): Focused on the booming aerospace recovery. Tension: Global supply chain bottlenecks for engine parts. $Honeywell(HON)$ : Diversified tech-industrial. Tension: Transitioning its portfolio toward "automation and future of aviation" which requires high R&D spend. If you have not considered above 3 sectors, perhaps now’s the time ? Remember to check out my other posts. (See below). Help to Repost ok, Thanks. MP Materials: $100 Target, Back in Sight ? INTC Q4 Earnings leads to Breakout Rally ? GOOG $4 Trillion Rally. The Siri-Gemini Effect ! Do you think US economy is progressing or stagnating’ ? Do you think the sectors of Materials, Energy & Industrial are the way to go in 2026 ? If you find this post interesting, give it wings! ️ Repost and share the insights ? Do consider “Follow me” and get firsthand read of my daily new post. Thank you. @Daily_Discussion @TigerPM @TigerStars @Tiger_SG @TigerEvents