Oil prices fell more than 1% today after President Donald Trump signaled he might not attack Iran. Late in the day, Trump told reporters in the Oval Office that "we've been told that the killing in Iran is stopping. It's stopped. It's stopping, and there's no plan for executions." The price of a barrel of Brent crude oil was down 93 cents to $64.50. The price of gold also fell on the news.
In the stock market, traders chose to sell Financials for the third day in a row. On Monday, they were hit by Trump's proposal to cap credit-card interest rates at 10%. He reportedly is working with liberal Senator Elizabeth Warren (D., MA) on the idea! On Tuesday and Wednesday, the Financials fell despite relatively good earnings reports from the big banks, as we anticipated in Monday's QT titled "Banking On The Banks." So we view the three-day selloff as a buying opportunity. Goldman and Morgan Stanley will likely report gangbuster earnings tomorrow. (And we expect the banks will succeed at killing the credit-card cap idea.)
Speaking of “gangbusters,” that adjective describes last year's real GDP performance in Q2 (3.8%), Q3 (4.3%), and probably Q4. The Atlanta Fed's GDPNow estimated growth rate for the final quarter of 2025 was raised from 5.1% yesterday to 5.3% today after the release of November's solid retail sales report (charts).
Our favorite indicator of US economic activity is S&P 500 forward earnings per share. It is available monthly since March 1985 and weekly since April 1994. It is highly correlated with both the Index of Coincident Economic Indicators and real GDP (charts). It has been rising on a steeper slope since late last year, confirming that real GDP growth during Q4-2025 might have exceeded that during Q3-2025 despite the government shutdown in October and November!
Also confirming the strength of the economy late last year was December's strong reading (54.4) of the NM-PMI (chart).
On the other hand, the M-PMI remained weak in 2025 through the end of the year (chart). It has been a misleading indicator of the growth rate of real GDP goods over the past couple of years. Ignore it.
The bottom line is that productivity likely continued to grow rapidly in Q4-2025, following significant gains in Q2 (4.1%) and Q3 (4.9%). That drove the three-year annualized growth rate to 2.5% (chart). We expect 3.0%-4.0% annual productivity growth over the remainder of the Roaring 2020s!
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