The Fed, Liquidity, and the Consumer: Three Pillars That Matter Now - 12/1/25

In this episode of Paramount Wealth Perspectives, Chris Coyle and Chief Investment Officer Scott Tremlett break down a surprising week in the markets where equities, bonds, and commodities all rallied at once — but the underlying data told a very different story. Together they unpack the mixed signals in labor markets, the widening gap between headline strength and internal market weakness, and why liquidity remains the defining force behind short-term price action.

Chris and Scott dive into consumer behavior following Black Friday, highlighting record online spending paired with slowing credit growth and softer unit demand. They examine the tension between a still-resilient but increasingly stressed consumer, elevated prices, and the slow transmission of rate cuts into the real economy. The discussion also covers upcoming economic data releases, the importance of PCE inflation, and emerging signs of an early-cycle backdrop heading into 2026 — along with the wide range of possible outcomes that investors need to consider.

The episode closes with a forward-looking view of growth, earnings, policy shifts, and currency dynamics, and why the next few months will be pivotal in determining whether markets build on recent strength or face another round of volatility.

Stay informed. Stay ahead. And join us for a clear, grounded look at the forces shaping the global economy.

Transcript

Chris Coyle: 0:00

Intro song

0:11

Hello everyone. Welcome to Paramount Wealth Perspectives, your go-to podcast for the latest updates on global markets and current economic events. This is your host, Chris Coyle. I'm the market director and an advisor here at Paramount Associates Wealth Management. And today I'm joined by our Chief Investment Officer, Scott Tremlett. Scott. Let's start with last week. It felt like one of those stretches where markets pushed back against the bearish narrative again. What stood out to you? Yes, Chris. Last week was one of those periods where everything seemed to catch a bid At the same time, equities, bonds, and commodities all moved higher into month end. It was a strong cross asset rally, no question, but I'd be careful about reading too much into it. These bursts of optimism can be powerful, but they can also be short-lived, especially in an environment where the underlying data is still mixed. And inequities, specifically the s and p 500 was up almost 4% on the week, which was enough to push November slightly positive after being in the red for most of the month. It was a big reversal over a short period, but again, one good week doesn't necessarily define the broader trend. And the sector leadership was interesting. It looked very risk on. It did communication services was up nearly 6%. Consumer discretionary, over 5% tech more than 4%. You had several large cap tech names putting on strong moves. Even Tesla was up 10%. Clearly the more cyclical, higher beta parts of the market we're doing the heavy lifting. But rather than calling this a definitive early cycle signal, we're saying it proves we're not late cycle. I think the more honest take is that the markets are reacting to the possibility of policy shifts, improve liquidity. And better than feared earnings in certain areas. Those can absolutely create bursts of strength. The question is whether that leadership can sustain itself or whether it fades once the next wave of data comes in. How about labor data? Because we did get mixed messages mixed, but with a theme, a DP showed a decline in private payrolls down about 13,500 over the four weeks ending November 8th. That's a real weakness. Now the government data is delayed because of the shutdown, but the September print showed unemployment rising to 4.4%. Again, softening beneath the service. But this ties into a lot of what we've been talking about. We believe that the inflection and labor already happened. Markets know it. The Fed is waiting for official confirmation, which is always lagging. You mentioned quote unquote, beneath the surface. We've been watching that internal market weakness. Yeah, and this is the part most people miss on the surface. The s and p was down only 5% from the highs recently, but underneath two thirds of the largest 1000 stocks have a 10% draw down or worse, one in four is down 20% or more. Gold even rolled over. In liquidity. You've been pounding the table that this is the key. Liquidity is the whole story right now. Earlier this year we talked about the clash between falling liquidity and a fed that's been tightening possibly too long. That dynamic hit the high momentum, low quality names first, and now it's showing up in the higher quality parts of the market. But I'm still constructive. As the government reopens, it's going to start drawing down its main checking account at the Fed when that account shrinks, that money flows back into the economy and financial markets. So in the near term, we should see a bit more cash sloshing around the system. And the fed ending tightening at the same time. That's a meaningful shift. this ties into investors finally asking whether the fed is too slow. True private labor. Data is telling you cuts should be bigger and earlier, but we aren't getting that yet. And the market is wrestling with that frustration. But again, once the cuts come, I think that becomes a huge catalyst for everything that's lagged for two years. Markets expect it next week, but the narrative around that has been volatile. Before we move on, we should talk about the consumer because last week we got a lot of signals from Black Friday. Some conflicting messages. A very complicated consumer. Right now. On one hand we saw record online spending nearly$12 billion, and that's up over 9% from last year. AI help shoppers find deals faster. You had traffic to. Retail sites are huge, but on the other hand, credit growth is slowing in almost every category. Research shows credit card growth, HELOC growth. Auto loans, everything is decelerating. Post rate cuts, and that's the key point. Rate cuts haven't actually helped the consumer yet. Mortgage rates went up slightly during the cutting cycle. Credit card rates barely budged and households lost almost$240 billion in interest. Income from savings because short term rates change instantly. So yes, people are still shopping, but they're doing fewer items per transaction, higher average selling prices, and a lot more bargain hunting. So record dollar spent, but softer unit demand and a weaker backdrop. Very true. Holiday spending isn't the victory lap people think it is. The US consumer is showing cracks. What's keeping the whole system stable is employment, and that too is starting to soften. Let's shift to this week. What are you watching most closely? There's a lot of data hitting this week as we work through delayed reports. We get manufacturing pmmi services, PMIs, vehicle sales, a DP, employment, industrial production, and finally that delayed September PCE print. And then Friday is a big one. Personal income, personal spending, the PCE Price Index, Michigan Consumer Sentiment and consumer credit. For me, three things really matter. First, it's the PCE, the Fed's preferred inflation gauge and the inflation path. We should see more confirmation that inflation is easing, but the nuance is this, inflation isn't the problem for the consumer. Prices are, prices are still elevated, especially for discretionary goods, partly because of those tariffs. So even if the inflation rate is falling. The price level still feels like a tax. And how do we get companies to lower prices without forcing a recession? Yes, a recession, not my base case, but why else would companies lower prices? That is the challenge. Secondly, it's labor. A DP and jobless claims. We know the private labor data has already weakened. If a DP confirms more softness, it reinforces the idea that the Fed is dragging its feet on the cuts. Thirdly, and most importantly to me is consumer spending and credit. Retail sales were up 0.2% last week, but consumer confidence fell sharply. If this week shows further cooling, it feeds into the narrative that the consumer is losing momentum heading into the first quarter. What about markets? Anything tactical? Tactical, I would say breadth of the market. Breadth of the market. And breadth of the market. If the liquidity improvement we talked about starts to show up, you'll see it first in the weakest, most beaten down corners. Profitless tech, small caps, speculative growth. Those should rally the most. That's my gauge on short term market movement. If they don't rally. Then we're not outta the weeds yet. Let's talk forward 2026. I know you are working on your current outlook yes, my 2026 view is still in process, but what I will say is I see more of an early cycle environment developing, not late cycle. I see a bump in the first quarter's growth overall, and I see late year upside surprises. I see earnings growth in the teens in the United States. I see monetary and fiscal policy creating tailwinds in the second half of 2026. Policymakers globally should be cutting rates. AI CapEx continues just at a more sustainable run rate. It always takes some time for companies to dial it in correctly, and consumer spending stays resilient because household balance sheets, despite all the strain today, are fundamentally strong. But you've said 2026 has the widest range of possible outcomes in years. It absolutely does. You can see stronger demand, faster AI productivity adoption, and a real GDP over the normal trend. You could also see moderate growth as policy eases and the consumer stabilizes You can see on the downside, a mild recession at the US slows more than expected due to tariffs, restrictive immigration, delayed monetary easing, or renewed focus to bring down current prices. What anchors all these scenarios is the consumer. If the consumer holds up even modestly, the downside is really limited. If the consumer cracks, then you could get that mild recession scenario And the dollar outlook, because that's been another big talking point. Yes, the dollar likely weakens into mid 2026 with a possible rebound by year end if the fed cuts earlier in the year, that path does matter for investors. A weaker dollar favors emerging markets and commod. A strengthening dollar later in 2026 gives you a very different setup. So this becomes a year of changing dynamics. Exactly. Strength, then possible weakness, and then rounding out the year with strength late. That's why the positioning decisions we make in the next few months really matter. Let's end with the consumer because everything seems to keep coming back to them. Yes, and I'll be blunt here. The consumer is not all hunky dory, but they're still spending, and that's the tension shaping 2025 into 2026. You have wage growth slowing, labor, softening credit costs, still high mortgage rates, elevated savings, interest income is starting to collapse. Sentiment near pandemic lows, but at the same time, wealth is up near all time highs. Home equity is massive. Employment is stable. At least enough AI driven tools make bargain hunting easier and consumers absolutely will spend during the holidays. So what do you get? A consumer that's stressed. But not broken. A consumer who shops for deals. And still shows up a consumer who is price sensitive but not price paralyzed. And how do rate cuts play into all this? Well, let me make this clear. Rate cuts help markets first and consumers last. That's the key message investors need to remember when looking at rates cuts. Reduce interest income for households immediately while reducing borrowing costs only Slowly, if at all the biggest categories like mortgages. Aren't benefiting yet. So the consumer release story is a 2026 story and not a December, 2025 story. So you're saying the consumer is stuck somewhere in the middle for a while? Exactly. And that's why I keep framing this as a phased recovery, not a broad one yet. Relief is coming, but the bridge between now and then is where the volatility lives. Awesome. Thanks Scott, as always, myself and our listeners, appreciate your insights. Thanks Chris. I'll catch you again in two weeks. I also want to thank our audience for tuning in and remember to please submit your questions via email to general@paramountassoc.com. For now, stay informed. Stay ahead and join us next time for more key updates shaping the global economy.