Daily Commentary

MarketMinder’s View: First, a disclaimer, as this article wades into some political developments: MarketMinder is nonpartisan and prefers no political party or politician over another. Our interest here is on the theme of economic data, which have been in some politicians’ crosshairs lately. Headlines worry the political challenges facing national agencies like the Bureau of Labor Statistics (BLS) will lead to poorer-quality data. But as this piece shares, the government isn’t the only economic observer out there. “Long-standing private reports have recently risen in prominence, including a labour market report collated by payrolls processor ADP. Google searches for the ADP Employment Report have recently trebled. New rivals have appeared on the market, such as Revelio Labs, which earlier this year launched its own monthly labour market statistics, marketed as a ‘more timely and granular’ complement to BLS’s jobs data. Wall Street research now also cites a variety of data sources, such as restaurant and hotel bookings and spending on credit and debit cards.” To be clear, we aren’t saying private sector-sourced data are inherently superior to the government’s. It all depends on methodology (including seasonal and inflation adjustment factors or a lack thereof) as well as the quality and completeness of information collected. That will naturally vary. Also worth noting: One of economic data’s primary investment uses is to compare the present to the past, a crucial way of assessing trends. Many BLS data series have longer historical records than newer reports (which can also get pretty niche), making the former more useful when analyzing past market cycles. For investors, remember no one indicator is sacrosanct or all-telling—instead, tracking multiple indicators can help provide a more comprehensive snapshot of the economy. For more, see our August commentary, “Looking Beyond the Data Debate.”

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: 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).