This Week in Review | China Economic Update, US Inflation, Auto Loan Delinquencies

Transcript

Matt White:

Hello and welcome to This Week in Review. This weekly segment is designed to highlight a few important developments you may have missed this week, what they may mean for markets, and most importantly, the potential impact for investors.

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Now, let's review what happened this week.

First, China's economic resilience. On Monday, China reported 4.8% year-over-year GDP growth for the third quarter of 2025, in line with expectations. This growth is notable, especially given the decline in exports to the US during this period. To us, this suggests that global demand for Chinese goods remains strong, with companies finding ways to reroute trade to the US through regions like Southeast Asia.

This week, China also wrapped up its key Communist Party plenum, unveiling the framework for its 2026 to 2030 five-year plan. The focus is on boosting high-tech self-reliance in areas like artificial intelligence, green energy and advanced manufacturing, while shifting growth towards domestic consumption instead of exports. The full plan will be finalized next March, but expect near-term policies to support high-tech innovation, household spending and economic security.

While some fear that China's long-term real estate troubles and renewed trade tensions with the US could slow its growth, it's important to keep perspective. China's real estate challenges have been well known since the pandemic and are unlikely to surprise markets at this stage.

Taking a broader view, we believe it's critical to focus on how reality compares to expectations. For example, despite ongoing tariff developments and trade tensions between the US and China, the global economy has shown resilience. Markets have rallied since the correction in April, demonstrating that the global economy can likely weather renewed tariff threats better than many fear. Why? Trade barriers tend to divert trade rather than reduce it. US/China trade accounts for only around 2% of goods traded globally, which helps cushion the global economy from the impact of political and tariff tensions between these two nations.

For long-term investors, the key takeaway is this: Don't let China's well-known economic challenges or trade tensions distract you from the positives. China continues to expand and contribute to global growth, all of which should only benefit stocks and those with diversified long-term investment strategy.

Next, US CPI inflation. This week, the Bureau of Labor Statistics reported that the US Consumer Price Index, or CPI, rose slightly to 3%, below expectations for 3.1%. While this may steal headlines, it's important to view inflation in context. Some level of inflation is normal and reflects a growing economy driven by wealth creation and expanding money supply.

It's worth noting that the unusually low inflation of the 2010s, which many became accustomed to, was actually an anomaly rather than the norm. Today's inflation levels, as measured by the CPI, are still hovering around their long-term average at approximately 3% year-over-year.

Keep in mind, stocks have historically been a reliable hedge against inflation. And while inflation impacts both revenues and costs for businesses, these effects often balance out in earnings over time. So instead of focusing on short-term inflation data, we encourage investors to keep their attention on broader market drivers and longer term trends.

Finally, US auto loan delinquencies. Recent headlines have highlighted rising US auto loan delinquencies, with some suggesting this could signal cash-strapped households, a potential credit crisis and even a looming bear market. While we empathize with those facing financial challenges, for long-term investors, it's important to remember that markets are resilient and can rise even when some consumers face difficulties.

As with any data point, though, context matters. While the total dollar value of auto loans has grown in recent years, mortgage debt still accounts for the vast majority of US consumer debt. And while the media focuses on auto loans, it's worth noting that default rates for commercial real estate loans have remained largely stable over the past few quarters. And residential loan defaults have actually fallen to some of the lowest levels in the last 30 years.

History also offers a valuable perspective. After the 2008 real estate crash, home loan delinquencies peaked in early 2010, an entire year after the new bull market had already begun. Default rates didn't return to pre-crash levels until Q1 2022. Yet stocks continued to climb throughout that period.

To us, this underscores the market's ability to look past economic weak spots and rise even in less-than-perfect conditions. Of course, low default rates don't guarantee smooth sailing ahead. But we believe fears about US consumer debt burdens, such as today's auto loan delinquency rates, are less critical than some might think.

Rather than focusing on short-term concerns like auto loan delinquencies, we believe it's more productive for long-term investors to keep a broader perspective. Markets have a proven ability to weather economic challenges, and long-term investors are often rewarded for staying focused on their goals rather than reacting to headlines.

That's it for this week. Thanks for tuning in to This Week in Review.

If you're looking for more insights, then don't miss our other series, Three Things You Need to Know This Week, released every Monday. You can also visit FisherInvestments.com any time for our latest thoughts on markets.

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