Daily Commentary

MarketMinder’s View: Please note, this piece mentions several publicly traded firms, and MarketMinder doesn’t make individual security recommendations—they are coincident to the titular theme we wish to address. According to this article, the coolest Wall Street trade today is known as “run it hot,” i.e., now is the time to buy because “Tax cuts and falling interest rates will heat up the economy, fueling a new burst of growth.” It is a variation of the “Don’t fight the Fed” investing adage, which argues rate cuts will buoy the economy, sending stocks higher. But we see a couple issues with this thesis. One, rate cuts (or hikes for that matter) don’t have predetermined market effects. Two, while the consensus presumes the Fed will lower rates this week, that doesn’t mean a rate-cut cycle is underway—central bankers’ actions aren’t predictable, so don’t overstate what a single monetary move will mean for stocks or the economy at large. Another interesting note: Despite the seeming ebullience in the article’s first half, skeptics voice concerns in the back half. One market strategist thinks the “stock market is just misinterpreting the state of affairs” since the Fed purportedly cuts when it is worried about a recession, while another expert worries what a weaker labor market means for the economy. This mixture of optimism about an overrated market driver (rate cuts) and concern of a false fear (the labor market is a late-lagging indicator) provides a snapshot of sentiment today—worth monitoring as investors weigh how expectations align with market fundamentals (e.g., how the global economic backdrop and political activity affect the outlook for corporate earnings over the next 3 – 30 months).

MarketMinder’s View: Some widely watched monthly economic indicators weakened in China last month. Retail sales slowed from July’s 3.7% y/y to August’s 3.4%, as did industrial production (5.7% y/y in July to August’s 5.2%)—and both fell short of expectations. This recap includes a spate of other datasets, including real estate investment, fixed asset investment and urban unemployment, but the broad takeaway: Domestic demand is flagging. We agree Chinese economic growth is slowing—and some areas may slow further still. As one economist pointed out here, “The slowdown in retail sales growth was mainly due to weaker demand for home appliances and electronics, as the boost from Beijing’s consumer goods trade-in subsidies started to fade, Lisheng Wang, China economist at Goldman Sachs, said in a note Monday. Wang expected consumption growth to slow ‘more meaningfully’ from September due to the ‘unfavourable base effects,’ stressing that ‘incremental and targeted easing’ is necessary in the coming quarters.” We disagree with that last point—targeted stimulus may boost growth to a small degree, but it doesn’t appear “necessary” for China’s expansion to continue. Interestingly, another economist posited that August’s slowdown isn’t a surprise, as “investors had already expected growth to weaken in the third quarter.” While doubters remain, it seems like more observers are noticing the long-feared “hard landing” may not be coming to pass any time soon—reality hasn’t been as dire as many thought. For more, see last month’s commentary, “Global Economic Roundup.”

MarketMinder’s View: The introduction here is a dynamite description of what inflation is and isn’t, so we will quote it in full: “Inflation is not like a virus that spreads through a population. A rising price in one part of the economy cannot ‘infect’ a price in another part of the economy. A currency doesn't just ‘catch’ inflation because oil prices go up or a drought causes wheat prices to rise. Inflation is the result of an imbalance between the supply of money and the demand to hold it. It's a monetary phenomenon, as Milton Friedman taught us. And it generally results in a rising price for most goods and services.” Well said. The rest of the pithy post features charts of different price measures that reinforce a broader point: Inflation is back to normal, and absent a surge in money supply—which isn’t happening and doesn’t look likely right now—the hot price growth from a few years ago isn’t likely to return. Prices are still high, and we don’t dismiss how burdensome that is, especially for folks on low, fixed or no income. But they are unlikely to surge further still from here. For more, see last month’s commentary, “July US CPI: Tariffs Don’t Fuel Scorching Inflation.”