TBEN Daily Open: US stocks seem unconcerned about inflation regardless of rising retail sales
People walk along 5th Avenue in Manhattan, one of the country’s main shopping streets on February 15, 2023 in New York City.
Spencer Plat | Getty Images
This report comes from today’s TBEN Daily Open, our new newsletter for international markets. TBEN Daily Open brings investors up to speed with everything they need to know, wherever they are. Do you like what you see? You can subscribe here.
What you need to know today
- US retail sales rose 3% in January, versus an expected 1.9%. The figure easily surpassed a 1.1% drop in December. Individually, industrial production remained flat in January. Analysts had expected a profit of 0.4%.
- “BYD is so far ahead of Tesla in China… it’s almost ridiculous,” said Berkshire Hathaway Vice Chairman Charlie Munger. He called the Chinese electric vehicle manufacturer his favorite stock ever. Berkshire doesn’t seem to like TSMC as much anymore, but dumps nearly 86% of those stocks between the third and fourth quarters of 2022.
- PRO Investors taunt the Fed with crypto, meme stocks and unprofitable companies that respond best to Fed communications,” said JPMorgan’s Marko Kolanovic, rightly calling the March 2020 bottom. He warned that “this divergence cannot go any further”.
it comes down to
It’s like investors stop worrying about inflation and higher interest rates. The strength of the US economy – which would imply further rate hikes – is translating into gains in the markets.
Yesterday I mentioned how sustained consumer spending could support the economy. The year-over-year increase in retail sales in January – 6.4% – is exactly the same number as the year-over-year increase in the consumer price index. It seems that the prospect of continued economic growth also makes equities optimistic. The Dow Jones Industrial Average was up 0.11%, the S&P 500 was up 0.28% and the Nasdaq Composite was up 0.92%.
Recent economic activity and market movements are forcing economists and investors to rethink the effect of interest rates. The higher cost of borrowing typically slows economic growth by restraining spending and increasing unemployment, which in turn depresses stocks. But “monthly reports on industrial production, retail sales and jobs were generally better than expected and point to a recovery in economic activity in early 2023 after a weak period in late 2022,” Comerica Bank chief economist Bill Adams said.
This distorted relationship between higher interest rates and improving economic activity is leading some investors, such as Santori Fund founder Dan Niles, to predict that the Federal Reserve could raise interest rates by more than 6%. And if the price of everything continues to rise? It’s hard to imagine what the Fed would do next.
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