During the first full trading week of the year, markets opened lower as bond yields returned to levels not seen since 2023, with the 10-year yield climbing close to 5%.

This shift was driven by concerns over rising inflation, new potential tariffs on aluminum, and Federal Open Market Committee (FOMC) meeting minutes indicating that central bankers were increasingly worried about price pressures. Labor data contributed to the cautious mood, as the Job Openings and Labor Turnover Survey (JOLTS) results combined with a decline in initial jobless claims to 201,000, below estimates, helped frame a riskier economic environment.

Looking ahead, markets may continue to see volatility as investors digest key inflation data, with analysts expecting CPI to rise by 0.4% in December after a 0.3% increase in November 2024. Producer Price Index (PPI) figures will follow, along with retail sales numbers covering the crucial holiday spending period, where only a slight uptick is anticipated. The FedWatch tool currently points to two more rate cuts this year, though indications of persistent inflation may influence how aggressively policymakers proceed. Friday’s housing data, which has signaled bullish trends in recent updates, is also on the schedule and could offer further insight into economic momentum.

Given this economic backdrop, let us see how this impacts the performance of various investment strategies.