Weekly Investment & Economic Talking Points
- In this weeks edition of “Don’t Believe the Headline”, we need to discuss the Durable Goods report from last week since it declined 1.2%. Being a leading indicator, it got some press last week even though it came out the day before Thanksgiving. When looking at durable goods numbers (and really any economic number) it’s important to know what the number is comprised of. In this case, transportation is a big piece of durable goods (goods that generally last 3 or more years) however it is also very volatile. If you take out the transportation sector, durable goods actually increased 0.4% in October, continuing the steady rise we have seen since mid-2016.
- Existing home sales rose 2.0% in October, slightly beating estimates. While the average price declined slightly, prices are up 4.7% yoy. Inventories continue to be tight, and the price trend has been upward and steady – both good signs for the economy.
- Some inflation news again – Octobers CPI report showed a 0.1% rise in prices which may sound small, but the notable piece of that is that according to First Trust we have now seen the fastest three-month pace of price increases dating back to 2012. Some of this may be hurricane related, but “core” consumer prices (which strip out volatile sectors like food and energy) are up 1.8% over the past year – the fastest pace on a rolling 12-month basis we’ve seen since April.
- Quick note on holiday shopping – today’s headline in the Wall Street Journal is “Black Friday Crowds Thin” which would imply that sales were down. Buried a few paragraphs in the article is the tidbit that online sales were up 18%. EIGHTTEEN percent. In any language or analysis, that is a “yuge” number. So yes, foot traffic in brick and mortar stores are down roughly 4% but the online sales more than made up for it. In fact, JP Morgan is estimating that total sales between Thanksgiving, Black Friday, and Cyber Monday, sales are expected to reach $15 billion this year. That’s double last year, and over three times what it was 5 years ago.
With earnings season pretty much wrapped up, we now enter the “Santa Rally” phase of the year. While the Santa Rally isn’t really a “real” thing, there are some rational explanations for it – mutual fund and hedge fund managers deploying cash to try to bump up their performance bonuses, a general feeling of euphoria around the holidays, and even people being distracted from selling. Regardless of the cause, and while it’s fun to talk about a Santa Rally there is no economic basis for it.