This week I thought we’d mix it up a bit. Instead of me pouring over the data and giving you my opinion, I thought I’d provide you with a large subset of the data and get your take. Of course, don’t feel obligated to reply, as this exercise should (at least in theory) simply reinforce the perspective I shared last week.
This is one of those tricky times when it appears that both data and price action are pointing in a multitude of directions. Let’s go over some of the key variables.
First, to set the stage, I think it’s important to note that peak economic growth is probably behind us for this cycle. Thanks to fiscal stimulus measures that should’ve been reserved for periods of economic weakness, but were instead used as afterburners, the U.S. economy reached an annualized growth rate of 4.2% in the second quarter.
Back on October 3rd, Mr. Powell made what I believe to be a grave mistake by stating that the federal funds rate remained a “long way from neutral.” If the market generally behaved as an adult, comments like this would be fine, as all relevant market participants are aware of the dot plot and related communications that ultimately frame his outlook.
But unfortunately, over the short-run the market tends to behave more like a moody teenage girl than a wise arbiter of prices. It gets emotional, throws tantrums, and whines incessantly about policy changes and other developments.
With the holiday shopping season officially in full swing, early estimates suggest that the American consumer is both in good spirits, and good shape financially. Data from multiple sources suggests that holiday spending will far outpace last year’s results.
While no one knows for sure exactly where the numbers will settle, those with insight into spending remain optimistic. Mastercard projected that overall sales on Black Friday totaled $23 billion, which represents a 9% increase from last year.
I’ve been sitting here parsing through all kinds of economic data trying to make the case for a bear market, and I’ll be honest – it’s tough. There just aren’t many data points that portend a rolling over of the business cycle, or primary trend.
There are of course a few, such as the declines in housing starts and building permits (shown below), but other than that, most leading indicators remain in firm uptrends (the S&P 500 being the notable exception).