Inflation still too high

In January 2025, the U.S. Consumer Price Index (CPI) increased by 0.5%, the largest gain since August 2023, bringing the annual inflation rate to 3.0%. This rise was driven by a 0.4% increase in shelter costs and a 0.4% uptick in food prices, with egg prices notably surging 15.2% due to an avian flu outbreak. The Producer Price Index (PPI) also climbed by 0.4% in January, following an upwardly revised 0.5% increase in December, resulting in a 3.5% year-over-year growth. These figures suggest persistent inflationary pressures, potentially influencing the Federal Reserve's monetary policy decisions.

• On the back of this data point, the odds of a Fed cut declined to just 1 this year, likely in December
• This confirms the higher-for-longer thesis laid out last year
• If rates were to remain higher than anticipated, it would put undue pressure on the economy due to higher financing costs as debts rollover
• The most important reason to be cognizant of this dynamic is that the relationship between bonds and stocks looks very different in a stubbornly high inflation and interest rate regime
• This is something we have not experienced in many decades and will lead to a change in approaches to portfolio construction

Retail sales decline

In January 2025, U.S. retail sales experienced a significant decline of 0.9%, marking the largest drop in nearly two years. This downturn was broad-based, with notable decreases in sectors such as automobiles, furniture, clothing, and online sales. Economists attribute this decline to factors including severe winter weather, a natural slowdown following a robust holiday shopping season, and consumer uncertainty amid ongoing tariff discussions. Despite this, spending at food services and drinking places saw an uptick, indicating some resilience in consumer spending.

• Retail sales are a good gauge of the consumer, which represents 70% of the economy
• This data is contrary to recent retailer earnings reports, which generally showed a resilient consumer
• This data is also more current than quarterly earnings
• However, it is important to understand this is a survey of roughly 13,000 retailers throughout the country
• It suffers from inconsistency and gets adjusted for various seasonality effects
• So while it is important to take note of the negative data point, we will need to hear more from retailers and credit card companies' earnings to get a clearer picture

Humanoid robots are coming

This week, major advancements in humanoid robotics came from Meta, Apple, and China’s expanding robotics programs. Meta launched a new division within Reality Labs focused on developing AI-powered humanoid robots, while Apple is reportedly exploring humanoid robotics for its smart home ecosystem, though mass production is likely years away. Apptronik secured a $350 million funding round to scale its Apollo humanoid robot, which is targeting warehouse and industrial automation. Meanwhile, China unveiled a new training facility capable of preparing over 100 humanoid robots simultaneously, highlighting the country’s push toward automation and AI-powered robotics.

• If you haven’t been paying attention, there have been massive recent advances in the development of humanoid robots
• This all has to do with the advances made in AI, as these models are necessary to help the robots function in a more human-like fashion
• And while early adoption in warehouses and factories is already beginning to happen, this will likely explode in the not-too-distant future
• That said,  we are still likely 5-10 years away from most families being able to afford a humanoid robot to help with household chores

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