Approaching Critical Data Re-Entry Point

US Retail Sales fell a whopping 1% in March, and Consumer Sentiment remained off its recent highs in GFC style deep recession territory.

While markets preferred to focus on the run of low inflation numbers last week, perhaps it is worth refocussing on how both Core Inflation and Inflation expectations, both increased.

Most assuredly the Federal Reserve will have noticed these two outcomes alarmingly. Therefore, the likely impact of last week’s data trend is more inclined to maintain the Federal Reserve on a tightening trajectory, than to have them turning around.

It is not the Fed’s job, and this may come as a surprise to some people, to deliver what the market wants. It doesn’t matter how much the market wants to believe in the fantasy of a Fed pivot, it isn’t going to happen. How can it, with US energy prices now rising again, expectations and core inflation already ticking higher.

Perhaps the most important thing for traders and investors the world over to consider at the moment, is the fast approaching ‘Data Re-entry Point”.

This is where the realisation will set in that bad data is just that. It is bad for corporate profits and therefore stock valuations.

The wild obsession with the idea that bad data will slow Fed hikes and is therefore a good thing for stocks, has almost run its course. Such an idea always had a limited life-span due to its highly blinkered nature.

This idea is partly a function of too much computer game playing, leading to increasingly simplistic binary approaches to all life’s and market problems.

Markets as we know are built upon the foundations of real companies trying to sell real services and products on Main Street. There is nothing simple or binary about the world we live in. Despite significant persuasions to believe so.

The deeper nuanced reality is that even falling interest rates in an environment of a steadily weakening US and global economy will not be enough to support the stock values of companies whose earnings are are either declining or turning into freecall.

If the economy was strong and rates stopped going up, maybe buy some stocks, but this is not the Main Street we live on right now. The on-the-ground reality is persistent consumer pain from inflation and Fed hikes. And both of those forces are very likely to be sustained. Possibly with force.

This goes in the face of the prevailing wishful market sentiment of the moment, and this is why there is real opportunity in markets right now for the savvy non-mono-directional investor.

The run of data last week was in fact bearish the economy and bullish Fed hikes. As in, there are several more rate hikes to come.

This is why, despite marginal new highs in New York on Friday, the market was again beginning to tire. Such elevated valuations are unlikely to survive the current quite heavy fundamentals in the real world.

Clifford BennettACY Securities Chief Economist

The view expressed within this document are solely that of Clifford Bennett’s and do not represent the views of ACY Securities.

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