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The Fed War: Trump vs. Powell

On Sunday evening, Jerome Powell released a remarkable video message. In it, he said that the Justice Department has served the Federal Reserve with grand jury subpoenas related to Powell’s testimony before the Senate regarding renovation efforts for the Fed’s office buildings.

Powell made it clear that the issue wasn’t really about the office buildings. Instead, this was to put pressure on the Fed to lower interest rates. Powell said he would fight to maintain the Fed’s independence. President Trump said he wasn’t aware of the subpoena. On Monday, gold soared to a new all-time high.

Let me add some explanation. For several years, the Fed has planned to renovate its office budlings. The buildings are close to 100 years old. Like with many things the government does, the project has run far over budget. It was originally supposed to cost $1.9 billion but that’s risen to $2.5 billion.

Last year, Powell explained that there are many reasons for the higher costs. Ironically, inflation is one issue and tariffs are another. The buildings also need to get up to modern standards regarding things like asbestos and lead, plus replacing antiquated mechanical systems.

Some of the plans called for rather opulent features like a roof garden, VIP dining rooms, excess marble and private elevators. Powell went before the Senate and said those features were either misrepresented or are no longer part of the building’s plans. The problem is that the plans Powell referenced deviate from the plans approved by the National Capital Planning Commission. As such, that would require an immediate halt to all construction.

I think DOJ’s plan is to trap Powell in either direction. Did he lie before Congress, or did he violate what was approved by the NCPC?

I’m certainly no lawyer, but that doesn’t sound like criminal behavior. Going by yesterday’s activity on social media, there seems to be a belief that Powell has been arrested for criminal fraud. That’s not the issue. Nor is it the buildings. It’s about his testimony.

Bear in mind that Powell’s term at the Fed ends in May. Technically, I’m referring to Powell’s term as Fed chair. He has a separate term as a Fed board member that goes on until 2028, but Fed chairs rarely stick around after their chairmanship ends. I’ve seen some speculation that Powell will stay on, but I doubt it.

In his video message, Powell said, “This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions—or whether instead monetary policy will be directed by political pressure or intimidation.”

Many are taking Powell’s side. Senator Thom Tillis, a Republican from North Carolina, who also sits on the Senate Banking Committee, said he will oppose any nominee until this matter “is fully resolved.” Tillis could bottle up any nominee in committee.

The last few Fed chairs released a statement condemning the DOJ’s action. The statement said that the move “has no place in the United States whose greatest strength is the rule of law, which is at the foundation of our economic success.” The statement was signed by former Fed Chairs Ben Bernanke, Janet Yellen and Alan Greenspan, and by previous Treasury Secretaries Henry Paulson, Timothy Geithner, Robert Rubin and Jacob Lew.

What to make of this? Frankly, I don’t see this issue going anywhere, although I think there’s a good case for lowering interest rates. The Fed may cut rates a few more times this year. Battles between presidents and the Fed are nothing new. Lyndon Johnson heavily pressured William McChesney Martin to keep rates low during the Vietnam War. Andrew Jackson hated the Second Bank of the United States and did everything he could to get rid of it. (He won.) The Trump versus Powell standoff will make some headlines, but I don’t expect anything to happen.

The Economy Created 50,000 Jobs Last Month

On Friday, the Bureau of Labor Statistics said that the U.S. economy created 50,000 net new jobs last month. That was below Wall Street’s forecast for a gain of 73,000. The figure for November was revised downward to 56,000.

The unemployment rate fell to 4.4% which was 0.1% less than expected. The broader U-6 rate fell to 8.4%. The labor force participation rate fell to 62.4%. The government now says that the economy lost 173,000 jobs in October. The previous report said it was a loss of 105,000.

Restaurant and bar jobs led the month, rising 27,000, while health care added 21,000 and social assistance increased by 17,000. Retail reported a decline of 25,000. Government added just 2,000 jobs for the month.

Average hourly earnings increased by 0.3%. That matched Wall Street’s forecast. Over the last year, average hourly earnings rose by 3.8%. Last year’s jobs gain of 584,000 was the worst year outside of a recession since 2003.

On January 22, we’ll get our first report on Q4 GDP. Some folks on Wall Street expect a very strong report. The Atlanta Fed’s GDPNow model sees Q4 GDP growth of 5.1% which would be very good.

Inflation Was Calm Last Month

On Thursday, the BLS said that inflation in December was slightly less than expected. For the month, headline inflation increased by 0.3%. That put the annual rate at 2.7%.

Core inflation, which doesn’t count food or energy prices, increased by 0.1% last month. That was 0.1% better than expected. Over the last year, core inflation increased by 2.6%. Shelter costs make up one-third of the CPI. Last month, shelter costs rose by 0.4%.

Food prices jumped 0.7% for the month, though egg prices tumbled 8.2% and fell nearly 21% from a year ago after soaring previously. Other areas seeing increases included recreation, airfares and medical care.

Energy prices rose 0.3% on the month and were up 2.3% from a year ago, though gasoline declined 0.5% and 3.4%, respectively.

Recreation prices increased by 1.2%. That’s the largest monthly increase for that category in over 30 years.

The Federal Reserve meets again in two weeks, and it looks like the Fed won’t make any changes to interest rates. In fact, the odds are against the Fed making any move at the meetings in March or April. Traders don’t see the Fed cutting rates until the June meeting, after Mr. Powell has left.

It’s still very early but I’m pleased to see some of our Buy List perform well in 2026. Of the eight trading days so far this year, the Buy List has outperformed the S&P 500 seven times.

Comfort Systems USA (FIX) is already a 15% winner for us this year. The shares just hit another new all-time high. SAIC (SAIC) is up more than 12% so far.

That’s all for now. This week is the start of earnings season but things won’t really get going until next week. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

(This is the free version of CWS Market Review. If you like what you see, then please sign up for the premium newsletter for $20 per month or $200 for the whole year. If you sign up today, you can see our two reports, “Your Handy Guide to Stock Orders” and “How Not to Get Screwed on Your Mortgage.”)

I always look forward to the start of the new trading year. It’s a fresh start and all the YTD performance numbers are set back to zero. It’s a time to leave behind last year’s mistakes and look ahead to profits in the new year.

So far, the stock market seems to be in a very happy mood in 2026. The S&P 500 rallied on the first three trading days of the new year, and today the index set a new all-time record closing high of 6,945.82. Before today, the last closing high was set on Christmas Eve.

Not only did the market rally on the first three days of this year, but our Buy List outperformed the market on all three days as well.

The events in Venezuela haven’t been enough to rattle the markets. Indeed, one of our buy List stocks, SAIC, the defense contractor, got a nice lift on the news. It’s already up 8% for us this year. We also had new highs today from stocks like Heico and Thermo Fisher.

Historically, this has been a good time of year for the stock market. From December 20 to February 18, the S&P 500 has gained an average of 3.6%. That’s close to one-third of the market’s annual gain coming in less than one-sixth the time.

Another of our new stocks on the Buy List, Comfort Systems USA, is already up 10.8% this year. Not bad for three days, but we know not to celebrate too soon. The market can and will change its mind very quickly.

The market news has been fairly quiet recently, but that will soon change. Now that the government shutdown is over, we can get back to regular economic reports. This Friday, the government will release its jobs report for December, although the last few labor reports were not very encouraging.

The simple fact is that the labor market has been slowing down. The unemployment rate is currently at a four-year high, even though it’s still at a historically low level. The unemployment rate reached its low point nearly three years ago.

Earlier today, we got the ISM Manufacturing Index for December, and it showed that U.S. manufacturing fell to a 14-month low. The Index fell to 47.9 for December. That’s the lowest level since October 2024. Manufacturing now makes up 10% of the U.S. economy.

The other big news headed our way will be the start of the Q4 earnings season. As usual, many of the big banks will go first. JPMorgan Chase and the Bank of New York Mellon are set to report on Tuesday, January 13. JPM often sets the tone for the entire banking sector.

By the way, JPM’s CEO Jamie Dimon made a cool $770 million last year. That works out to 28 cents per share on a $330 stock. I’m not smart enough to tell you if that’s too high or too low, but the stock gained 34% last year. JPM’s annual profit will probably come in around $20 per share.

On Wednesday, we’ll get earnings reports from Bank of America, Citigroup, and Wells Fargo. The financial sector has been unusually strong lately, and I say that cautiously. Except for a few bursts, finance stocks haven’t been popular in several years. Since late October, the S&P 500 Financial ETF is up by more than 8% while the S&P 500 ETF is up less than 1%.

Our first batch of Buy List earnings reports probably won’t be until the third week of January. Companies often need a little more time to compile their Q4 reports. That’s why the Q4 earnings season tends to be more spread out compared with the other quarters.

Tomorrow, we’ll get an early look at the jobs report when ADP releases its private payrolls report. Wall Street expects a gain of 48,000. Also on Wednesday, we’ll get reports on job openings and factory orders. Job openings have fallen over the last three years, but the losses may have stabilized. We’ll know more soon.

On Thursday, we’ll get initial jobless claims plus reports on productivity and the trade deficit. The big jobs report is on Friday. Wall Street expects to see a gain of 73,000 jobs which is pretty good. Expectations are for the unemployment rate to fall by 0.1% to 4.5%.

I’m also paying close attention to average hourly earnings. Economists are looking for a gain of 0.3%. If that’s close to accurate, then it tells me that the government shutdown didn’t have the impact I feared it would have.

Inflation has also been calm. The next CPI report will be out on January 13. The January Federal Reserve meeting is still three weeks away, and it increasingly looks like the Fed is ready to hold off on lowering rates. Not only that, but the odds of a rate cut in March are looking iffy.

I want to share this chart with you because it might be the most frustrating chart about the recent market. The chart below shows the S&P 500 ETF (in black) against the S&P 500 Dividend Aristocrats ETF (in blue).

You can see that the overall market has soundly beaten the Dividend Aristocrats over the last three years. The market has more than tripled the Aristocrats. Actually, this chart understates the impact because the Dividend Aristocrats are inside the S&P 500.

The Dividend Aristocrats are companies that have raised their dividend every year for the last 25 years. Many have raised their dividend every year for 40 or 50 years.

I think of the Dividend Aristocrats as a good proxy for high quality companies. When I use the words “blue chip stocks,” this is what I mean. Many index makers have a “quality” factor for their indexes but I’m never exactly sure what metrics they use. With the Dividend Aristocrats, I have a good idea.

I find it alarming that high quality stocks have lagged the market by so much over the last three years. I certainly expect periods of underperformance, but this long stretch is very unusual.

This chart also shows us just how much the market has been influenced by a small number of lower quality stocks. The sad fact is that being safe and prudent has not been the most profitable strategy.

It’s not that conservative investors have lost money, but they’ve been left out of the biggest gains in a thriving bull market. I’m concerned that investors make take away the wrong lesson, but it’s hard to argue with success.

I’m not about to predict a resurgence of high-quality stocks, but these stocks can only lag the market for so long.

That’s all for now. The jobs report is due out Friday morning. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

Happy New Year!

The 2025 investing year is on the books!

This was another good year for Wall Street. The market shook off some trade-related jitters from this April to put in another solid performance. We even made several new all-time highs. Once again, the expected recession never arrived. After a long pause, the Federal Reserve resumed cutting interest rates again.

I’m pleased to say that the 2025 Buy List performed well, although we didn’t do as well as the overall market. Much of this can be explained by our conservative approach. In 2025, safe and secure stocks were not the most sought after on Wall Street.

For the year, the S&P 500 gained 16.39%, and with dividends, it was up 17.88%. Our Buy List was up 6.54% for the year, and with dividends, the gain was 7.53%. Most of our underperformance came when the market sharply turned around in April, May and June.

In 2025, the Buy List had a “beta” of 0.7105. That’s unusually low for us. I think this shows us how much risk the rest of the market was absorbing.

For the 20 years of the Buy List, the S&P 500 with dividends is up 706.20%, while our Buy List is up 713.84%.

Here’s a look at our Buy List versus the S&P 500 throughout the year (this doesn’t include dividends).

I always strive to be as transparent as possible when discussing our track record. Here’s a breakdown of how our Buy List performed in 2025. For tracking purposes, I assume the Buy List is a $1 million portfolio and that all 25 stocks are equally weighted at the start of the year.

Amphenol was our biggest winner on the year, with a gain of more than 94%. IES Holdings also did very well, with a gain of over 93%. Cencora gained 50% for us. Fiserv was our biggest loser, with a loss of 67%. FactSet and Miller Industries also had a tough year. Interestingly, in 2024, both Fiserv and Miller gained 54%.

FICO had a very dramatic year in 2025. At one point in May, it lost nearly one-third of its value in one week. Later, the stock popped more than 40% off its August low in just a few weeks.

Note that during the year, Fiserv changed its symbol from FI to FISV.

Here’s the data behind the dividend-adjusted returns. I’ve listed each stock’s beginning price, ending price and dividend-adjusted starting price.

Now let’s turn to the 25 stocks for the 2026 Buy List. The list is locked and sealed, and I can’t make any changes for 12 months.

For tracking purposes, I assume the Buy List is a $1 million portfolio that’s equally divided among 25 stocks. Below are all 25 positions with the number of shares for each and the closing price for 2025. Whenever I discuss how the Buy List is doing, the list below is what I’m referring to.

Here are the five new buys with their starting Buy Below prices:

Casey’s General Stores ($600)
Comfort Systems USA ($1,000)
McKesson ($900)
ResMed ($270)
Sprouts Farmers Market ($90)

The five sells are:

Fiserv
McGrath RentCorp
Miller Industries
Otis Worldwide
Silgan

Here are the corporate descriptions of our five new stocks:

Casey’s is a Fortune 500 company operating approximately 2,900 convenience stores. Founded more than 50 years ago, the company has grown to become the third-largest convenience store retailer and the fifth-largest pizza chain in the United States. Casey’s provides freshly prepared foods, quality foods and friendly service at its locations. Guests can enjoy pizza, donuts, other assorted bakery items, and a wide selection of beverages and snacks.

Comfort Systems USA is a premier provider of business solutions addressing workplace comfort, with 184 locations in 139 cities around the nation.

McKesson Corporation is a diversified healthcare services leader dedicated to advancing health outcomes for patients everywhere. Our teams partner with biopharma companies, care providers, pharmacies, manufacturers, governments, and others to deliver insights, products and services to help make quality care more accessible and affordable.

Resmed creates life-changing health technologies that people love. We’re relentlessly committed to pioneering innovative technology to empower millions of people in 140 countries to live happier, healthier lives. Our AI-powered digital health solutions, cloud-connected devices and intelligent software make home healthcare more personalized, accessible and effective. Ultimately, Resmed envisions a world where every person can achieve their full potential through better sleep and breathing, with care delivered in their own home.

True to its farm-stand heritage, Sprouts offers a unique grocery experience featuring an open layout with fresh produce at the heart of the store. Sprouts inspires wellness naturally with a carefully curated assortment of better-for-you products paired with purpose-driven people. The healthy grocer continues to bring the latest in wholesome, innovative products made with lifestyle-friendly ingredients such as organic, plant-based and gluten-free. Headquartered in Phoenix, and one of the largest and fastest growing specialty retailers of fresh, natural and organic food in the United States, Sprouts employs approximately 35,000 team members and operates more than 450 stores in 24 states nationwide.