Fed Meeting on the Horizon: Why Market Gains May Face Headwinds

The stock market’s post-holiday optimism has begun to fade. After capturing a robust Santa Claus rally, major indexes pulled back yesterday with a 0.5% decline amid subdued trading volume as profit-taking took hold. The Nasdaq remains solidly ahead at +21% year-to-date, with other major indexes posting double-digit gains as well.

It’s been a surprisingly strong start to 2025 given earlier uncertainties. Despite the short-lived tariff initiatives in early April that rattled markets before being hastily abandoned, economic growth has held steady at +2.5% following Q3’s impressive +4.3% print — the strongest performance since Q3 2023. This current pace even edges out 2024’s full-year average of +2.4%, suggesting resilience beneath the surface.

Inflation and Employment: The Hidden Concerns

However, cracks are beginning to show. While the latest CPI Inflation Rate dropped 30 basis points to +2.7%, many analysts worry this figure represents incomplete data. With tariff implementations expected to intensify pressure on U.S. trade goods, expect potential upward revisions exceeding 30 basis points.

The employment picture is equally troubling. Weekly Jobless Claims appear stable on the surface, but this masks a deeper problem: new job creation has slumped roughly 100,000 positions compared to a year ago. Even with the retirement wave moderating to below 100,000 per month, workforce exits are outpacing replacements. Add in recent graduates still seeking work months or years after graduation — typically excluded from official workforce counts — and labor market resilience looks questionable.

Housing Stabilizes While Inflation Concerns Mount

Yesterday delivered mixed signals from the real estate sector. Pending Home Sales unexpectedly jumped to +3.3%, rebounding from two consecutive months of declines and marking the third-strongest reading in twelve months. Meanwhile, Case-Shiller Home Prices rose +1.1% this fall, reversing three months of losses.

While homeowners welcome this stability, the broader implication worries inflation hawks: housing strength suggests sticky price pressures, contradicting the benign inflation narrative.

What Markets Are Watching Today

Chicago Business Barometer hits the wires after the opening bell. Last month’s +36.3% reading was the weakest since May 2024 — the 24th consecutive month below the 50 threshold separating expansion from contraction. Any reading above +40% would likely provide relief, though don’t expect volatility to disappear.

The Federal Open Market Committee (FOMC) meeting minutes release at 2pm ET, offering critical insight into the next fed meeting timeline. The document will expose sharp divergences: Fed Governor Stephen Miran advocated a -50 basis point rate cut for the third straight meeting, while Chicago and Kansas City Fed Presidents pushed for maintaining current rates. Market consensus anticipates a pause through the next fed meeting in late January. With the Fed skipping February and reconvening in March, the data landscape between now and mid-March — including multiple inflation and employment reports — will largely determine the outcome.

The Data Center Play Beyond the Obvious

As markets absorb these crosscurrents, one structural theme persists: the digital infrastructure race. Data center buildouts continue accelerating, driving demand for specialized semiconductor hardware. While industry giants capture headlines, lesser-known chipmakers positioned in niche markets offer compelling asymmetric opportunities — particularly those supplying components that larger competitors have deprioritized. This next phase of the data economy may define the 2025 bull case, provided macro headwinds don’t derail the broader market advance.