Mathematical context can totally change the story 🧮
Plus a charted review of the macro crosscurrents 🔀
📈The stock market rallied to all-time highs, with the S&P 500 setting an intraday high of 6,986.33 and a closing high of 6,977.27 on Monday. The index closed the week at 6,940.01 and is now up 1.4% year-to-date. For market insights, check out the Stock Market tab at TKer. »
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Some news headlines are better at grabbing readers' attention than others. Alarming headlines are particularly great at drawing eyeballs.
However, investors should always approach these stories with a bit of skepticism, as they may lead to incorrect conclusions. Because you can make any piece of data say what you want if you try.
Headlines can sometimes make the news sound worse than it really is, and other times make it sound better. They may also present information without adequate warning about the quality of the source.
With that in mind, a few headlines last week warrant some caution.
Consider the margin of error 🫸 🫷
Here are two about home sales data released on Tuesday:
“US new home sales fall marginally in October” - Reuters
“U.S. New Home Sales Pick Up After Summer, Delayed Data Say” - WSJ
Both are factually accurate based on the data. And you can see how tones can easily shift when you tweak the context.
But story framing is not the issue I want to flag. Check this out from the Census’s press release:
Keep in mind that the Census’s new home sales figures are derived from surveys, which means the reported figures are extrapolated from a sample, and they therefore come with a margin of error. Those parentheticals reflect that margin of error at the 90% confidence interval. (More in their explanatory notes here.)
In other words, while new home sales reportedly increased by 0.1% in October, there’s a pretty good chance actual new home sales grew by as much as 14.3% or fell by as much as 14.2% from the previous month. Also, the base number may still be revised upward or downward.
What are we to do?
Remember TKer’s Rule No. 1 of analyzing the economy: Don’t count on the signal of a single metric.
This means you should always consider what other data are signaling. In this particular context, you might want to consider weekly mortgage application data or commentary from homebuilders.
This also means you shouldn’t read too much into one month’s data. Instead, consider how this new data compares to the previous several months’ worth of data. Does it confirm a trend? Or does it suggest that we may be seeing a shift in the trend, which means we might want to wait for next month’s data for more confirmation?
Data will zig-zag in the short term. When you zoom out and expand the time horizon, the data tend to make more sense. But up close, it can be a mess.
By the way, survey data aren’t the only figures that come with a wide margin of error. Since 1928, the average annual total return in the stock market is 11.7%. But one standard deviation around that average is a whopping 19.6 percentage points. More on that here.
Beware ‘denominator blindness’ ➗
Last week came with at least two scoops on financial services industry layoffs:
“Citi to Cut About 1,000 Jobs This Week as Fraser Trims Costs” - Bloomberg
“BlackRock to cut around 250 jobs in latest layoffs” - Reuters
Layoffs are often associated with economic recessions. At the very least, they are considered a reflection of problems for the companies and industries involved.
However, every macro discussion about layoffs should start with this key metric: the layoff rate.
Before we get to that, we first have to remember that layoffs are always happening, even when the economy is booming. According to the most recent monthly Job Openings & Labor Turnover Survey from the BLS, employers laid off 1.7 million people in November.
Yes, that’s a large number. However, as the chart below illustrates, the number of monthly layoffs during much of the current economic expansion has fluctuated between 1.3 million and 1.9 million. During the prepandemic economic expansion, this figure trended between 1.6 million and 2.1 million.
That brings us to the layoff rate.
While 1.7 million layoffs are certainly a large number, it’s relatively small in the context of the employed workforce.
In fact, it represents just 1.1% of the employed workforce. As the chart below shows, it’s normal for U.S. employers to lay off about 1% to 1.5% of their workforce during economic expansions.
Coincidentally, the layoffs reported at BlackRock represent less than 1% of the 22,000 employed by the company. And the cuts at Citi represent just over 1% of the 225,000 in the bank’s workforce. (And by the way, a company that does layoffs may also be hiring in other departments. So the net headcount reduction may be lower than suggested by the gross layoff number.)
Barry Ritholtz reminds us that this bias is called “denominator blindness,” or “the failure to put big, scary numbers into context.”
And it happens frequently. Stories about “cash on the sidelines,” margin debt, credit card debt, and stock buybacks often suffer from denominator blindness.
Truth can take many forms 🎭
Without context, even facts can lead you astray.
Keep in mind: The news business is incentivized to address its audience’s interests and not necessarily its needs. Their priority is to get your attention, which can often conflict with your goals of becoming a better-informed investor.
For more tips on navigating financial news, read: A 5-step guide to processing ambiguous news in the markets and the economy 📋 and Three types of ‘facts’ that can lead you astray 🗺️
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Review of the macro crosscurrents 🔀
There were several notable data points and macroeconomic developments since our last review:
🎈Consumer price inflation appears to cool. The Consumer Price Index (CPI) in December was up 2.7% from a year ago. Adjusted for food and energy prices, core CPI was up 2.6%.
On a month-over-month basis, CPI was up 0.3% and core CPI increased 0.2%. If you annualize the three-month trend in the monthly figures — a reflection of the short-term trend in prices — core CPI climbed 3.6%.
While inflation rates remain above the Federal Reserve’s 2% target, they are down considerably from peak levels just a few years ago.
For more on the Fed’s impact on markets, read: There’s a more important force than the Fed driving the stock market 💪
⛽️ Gas prices tick higher, but remain relatively low. From AAA: “The national average for a gallon of regular gas went up a couple of cents since last week to $2.84. Drivers are still paying less than they were last year when the national average was $3.08. Pump prices are typically low in January thanks to a dip in gas demand and cheaper winter blend gasoline. Crude oil prices remain low as markets keep an eye on tensions in Iran, which is a member of OPEC and one of the world’s top oil producers. Any disruption to Iran’s oil infrastructure could have a ripple effect on gas prices here at home.”
For more on energy prices, read: Higher oil prices meant something different in the past 🛢️
💳 Card spending data is holding up. From JPMorgan: “As of 06 Jan 2026, our Chase Consumer Card spending data (unadjusted) was 4.7% above the same day last year. Based on the Chase Consumer Card data through 06 Jan 2026, our estimate of the US Census November control measure of retail sales m/m is 0.48%.“
From BofA: “Total card spending per HH was up 4.6% y/y in the week ending Jan 10, according to BAC aggregated credit & debit card data. Entertainment, transit and airlines saw the biggest increase in y/y spending growth since last week. Strong spending growth across most categories is likely partly due to favorable base effects from major snowstorms in Jan’25.”
Consumer spending data has looked a lot better than consumer sentiment readings. For more on this contradiction, read: We’re taking that vacation whether we like it or not 🛫 and Consumer finances remain in good shape 💵
💼 New unemployment insurance claims and total ongoing claims decline. Initial claims for unemployment benefits fell to 198,000 during the week ending Jan. 10, down from 207,000 the week prior. This metric remains at levels historically associated with economic growth.
Insured unemployment, which captures those who continue to claim unemployment benefits, declined to 1.884 million during the week ending Jan. 3.
For more on the labor market, read: The next couple of years for the job market could be tough 🫤
🤷🏻♂️ Small business optimism ticks higher. The NFIB’s Small Business Optimism Index rose to 99.5 in December from 99.0 in November. From the NFIB: “2025 ended with a further increase in small business optimism. While Main Street business owners remain concerned about taxes, they anticipate favorable economic conditions in 2026 due to waning cost pressures, easing labor challenges, and an increase in capital investments.”
Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.
For more on this, read: What businesses do > what businesses say 🙊 and 4 sometimes-conflicting ways I’m thinking about the economy 😬😞😎🙃
🛠️ Industrial activity ticked higher. Industrial production activity in December increased 0.7% from prior month levels. Manufacturing output rose 0.2%.
🏠 Mortgage rates fall. According to Freddie Mac, the average 30-year fixed-rate mortgage declined to 6.06%, down from 6.16% last week: “Late last week, mortgage rates dropped, driving the weekly average down to its lowest level in more than three years. The impacts are noticeable, as weekly purchase applications and refinance activity have jumped, underscoring the benefits for both buyers and current owners. It appears that housing activity is improving and poised for a solid spring sales season.”
As of Q3, there were 148.3 million housing units in the U.S., of which 86.9 million were owner-occupied and about 40% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the small weekly movements in home prices or mortgage rates.
For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖
🏘️ Home sales rise. Sales of previously owned homes increased by 5.1% in December to an annualized rate of 4.35 million units. From NAR chief economist Lawrence Yun: “2025 was another tough year for homebuyers, marked by record-high home prices and historically low home sales. However, in the fourth quarter, conditions began improving, with lower mortgage rates and slower home price growth.”
December’s prices for previously owned homes declined month over month but were up year over year. From the NAR: “The median existing-home sales price for all housing types in December was $405,400, up 0.4% from one year ago ($403,700) – the 30th consecutive month of year-over-year price increases.”
🏠 Homebuilder sentiment falls. From the NAHB: “While the upper end of the housing market is holding steady, affordability conditions are taking a toll on the lower and mid-range sectors. Buyers are concerned about high home prices and mortgage rates, with downpayments particularly challenging given elevated price to income ratios.”
🏢 Offices remain relatively empty. From Kastle Systems: “Workers returned to the office in numbers during the first week in January, peaking Tuesday, January 6 with the 10 City Back to Work Barometer hitting 63.6% that day, a rise of more than 35 points over the week prior that included winter holidays. The pattern was similar across all ten Barometer cities. Occupancy remained nearly as high the next day, at 63.4%, a rise of nearly 45 points over the prior Wednesday, which had been New Year’s Eve day.”
For more on office occupancy, read: This stat about offices reminds us things are far from normal 🏢
📈 Near-term GDP growth estimates are tracking positively. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 5.3% rate in Q4.
For more on GDP and the economy, read: 9 once-hot economic charts that cooled 📉 and We’re at an economic tipping point ⚖️
Below are data that were released by Federal agencies last week. Due to the effects of the government shutdown, the numbers are a bit stale but worth seeing.
🛍️ Retail shopping grew. Retail sales grew 0.6% to a record $735.9 billion level in November. Core retail sales — which excludes automobiles, gasoline, building materials, and food services — climbed by 0.4%.
Most retail categories experienced growth.
For more on what’s bolstering spending, read: Consumer finances remain in good shape 💵
Putting it all together 📋
Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.
Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Job creation, although cooling, appears to be modestly positive, and the Federal Reserve — having resolved the inflation crisis — shifted its focus toward supporting the labor market.
But growth is cooling: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like excess job openings and core capex orders have faded. It has become harder to argue that growth is destiny.
Actions speak louder than words: We are in an odd period, given that the hard economic data decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.
Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This came with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.
Mind the ever-present risks: Of course, we should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyber attacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.
Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.
Think long-term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t be able to overcome over time. The long game remains undefeated, and it’s a streak that long-term investors can expect to continue.
For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »
Key insights about the stock market 📈
Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.
10 truths about the stock market 📈
The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.
The makeup of the S&P 500 is constantly changing 🔀
Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.
The key driver of stock prices: Earnings💰
For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings has a very tight statistical relationship.
Stomach-churning stock market sell-offs are normal🎢
Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.
How the stock market performed around recessions 📉📈
Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.
In the stock market, time pays ⏳
Since 1928, the S&P 500 has generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.
What a strong dollar means for stocks 👑
While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.
Stanley Druckenmiller's No. 1 piece of advice for novice investors 🧐
…you don't want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there's overcapacity and they're losing money. What about when they're losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it's going to be in 18 to 24 months as opposed to now. If you buy it now, you're buying into every single fad every single moment. Whereas if you envision the future, you're trying to imagine how that might be reflected differently in security prices.
Peter Lynch made a remarkably prescient market observation in 1994 🎯
Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That's all there is to it.
Warren Buffett's 'fourth law of motion' 📉
Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.
Most pros can’t beat the market 🥊
According to S&P Dow Jones Indices (SPDJI), 65% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2024. As you stretch the time horizon, the numbers get even more dismal. Over a three-year period, 85% underperformed. Over a 10-year period, 90% underperformed. And over a 20-year period, 92% underperformed. This 2023 performance follows 14 consecutive years in which the majority of fund managers in this category have lagged the index.
Proof that 'past performance is no guarantee of future results' 📊
Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, just 4.21% of all U.S. equity funds in the top half of performance during the first year were able to remain in the top during the four subsequent years. Only 2.42% of U.S. large-cap funds remained in the top half
SPDJI’s report also considered fund performance relative to their benchmarks over the past three years. Of 738 U.S. large-cap equity funds tracked by SPDJI, 50.68% beat the S&P 500 in 2022. Just 5.08% beat the S&P in the two years ending 2023. And only 2.14% of the funds beat the index over the three years ending in 2024.
The odds are stacked against stock pickers 🎲
Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers aren’t able to do this consistently. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 19% of the stocks in the S&P 500 outperformed the average stock’s return from 2001 to 2025. Over this period, the average return on an S&P 500 stock was 452%, while the median stock rose by just 59%.
