Wall Street posts three-week losing streak as Iran war batters sentiment
The big news on Thursday from the Commerce Department was that the U.S. trade deficit rose to $70.3 billion in December and $901.5 billion in 2025. In December, imports surged 3.6% to $357.6 billion, while exports declined 1.7% to $287.3 billion. Economists were expecting the trade deficit to be only $55.8 billion in December, so this was a big surprise that caused most economists to lower their fourth-quarter GDP estimates. In fact, in the wake of the announcement of the December trade deficit, the Atlanta Fed lowered its fourth-quarter GDP estimate 3%, down from its previous estimate of 3.6%.
The Commerce Department announced that its preliminary estimate of fourth-quarter GDP only rose at a 1.4% annual pace, which was substantially below economists’ consensus estimate of 2.8%. Federal government spending declined 16.6% in the fourth quarter due largely to the federal government shutdown and was a 1% drag on overall GDP growth. A higher-than-expected trade deficit was also a drag on fourth-quarter GDP growth. For all of 2025, GDP rose 2.2%. Treasury yields meandered lower after the GDP report, which will help raise the odds of another Fed key interest rate cut.
The only reason that the Fed may delay its next Fed cut is that the Personal Consumption Expenditure (PCE) rose 0.4% in December and 2.9% in the past 12 months. The core PCE, excluding food and energy, also rose 0.4% and 3% in the past 12 months. The good news in the PCE report is that consumer spending rose 0.4% in December, which bodes well for GDP growth.
Private credit firm Blue Owl on Wednesday announced that it permanently restricted investors from exiting one of its retail funds. Namely, Blue Owl Capital Corp II. This news caused the stock prices of Ares Management, Apollo Global Management, KKR, Blackstone and TPG to all sell off. Complicating matters is that BlackRock slashed the value of some of its private credit holdings in the past month. The former head of Pimco, Mohamed El-Erian, on X posted the question, “Is this a ‘canary-in-the-coalmine’ moment?”
Finally, The Wall Street Journal reported that President Trump on Truth Social on Thursday ordered the release of the government’s UFO files. Apparently, Trump was irked that former President Barack Obama leaked confidential government data when, on a podcast, he said regarding aliens that “They’re real, but I haven’t seen them.” Trump said that based on “tremendous interest shown,” he will direct the defense secretary and relevant departments to begin the process of releasing government files related to alien and extraterrestrial life, unidentified aerial phenomena, unidentified flying objects “and any and all other information connected to these highly complex, but extremely interesting and important, matters.” I texted Christopher Mellon, who released the Tic Tac video to the New York Times and featured in “The Age of Disclosure” movie about President Trump, and he said, “I think Trump is unleashing something he’ll not be able to control that will likely later require him to address the nation.”