LIVE MARKETS-The key to 2025 will be about correctly gauging the inflation outlook

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THE KEY TO 2025 WILL BE ABOUT CORRECTLY GAUGING THE INFLATION OUTLOOK

Last week's core CPI print that was a bit below the estimate provided a reprieve to the beleaguered bond market (after what had been a steady advance over the past several months), and helped spur a surge in stock prices.

That said, Bob Doll, chief investment officer at Crossmark Global Investments, remains cautious.

"In our view, U.S. inflation is not under control, and the risks remain to the upside even if the Fed stops cutting its policy rate," writes Doll in his latest "Deliberations."

As Doll sees it, there are likely to be periodic risk-off phases whenever bond yields rise to fast.

He believes that an "economic knock-out blow" from either protectionism or an overshoot in Treasury yields is unlikely anytime soon. But he also believes significant forward progress in stocks is also unlikely.

According to Doll, correctly gauging the inflation outlook will "likely be the most important investment issue of the year," as it will determine whether bond yields rise sufficiently to threaten economic growth.

Doll notes that with the Trump Administration, select tariffs and deportation measures are wild cards, and at a minimum he expects "considerable noise" this year along with "heightened angst."

Crossmark Global is guessing that tariffs will not derail the global economic expansion. However, Doll cautions that this view is already embedded in asset pricing, exposing the market to downside risk if it proves too optimistic.

In any event, Doll says that "the U.S. is the most expensive global equity market and ultimately will face the greatest inflation and bond market risks."

(Terence Gabriel)

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