US Retail Sales are said to have surged by 1.3% in October, but the true story really isn’t quite that good.
The Retail Sales data is not adjusted for inflation. This means higher prices for essential items can drive retail sales higher even if the consumer is actually slowing and trying to spend less. Gasoline sales were 4.1% higher in October as gasoline prices were up 4%.
In the area of more discretionary items such as electronics and sporting goods, retail sales of these items actually fell in October. To suggest the US economy is strong because retail sales were up 1.3%, is a bit of a stretch.
Markets tended to take this data at face value, however, and stocks sold off on the idea that strong, in their minds, retail sales meant a still aggressive Federal Reserve rate hike outlook.
The view here is quite different. We believe the US Federal Reserve will be hiking by as much as 75 points one last time, but at least steadily continuing with 50 point hikes to well above 6%. Perhaps above 7%. We see no letup in the interest rate pressure on the stock market, regardless of the medium-term run of data in any case.
Our further difference is that we see the US economy continuing to stumble down a rather rocky decline. That is, inflation remains high as stock and property prices are both declining. Services into contraction with manufacturing in close pursuit. The backdrop is a global economy facing a recession.
We continue to warn that regardless of the interpretation of any individual piece of economic data at the moment, the outlook is deeply concerning and not at all stock market-friendly.
Investors should continue to play defence. The Fed will keep hiking.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
