Wall Street on Friday posted its best week since early August, driven by a combination of strong earnings and optimism over trade relations between the U.S. and China. Most attention, however, was on the consumer price index (CPI) report for September – inflation rose to 3% but was less than the 3.1% expected. That reinforced expectations that the Federal Reserve would most certainly cut interest rates this week and provided further support for another cut in December.
Earnings season continued to assist the surging stock market with Tesla posting record quarterly revenues and both GM and Ford posting strong results. Netflix took a profit hit but it was due to an unexpected expense. For the week, the S&P 500 index gained 1..9%, while the Dow added 2.2% and the Nasdaq advanced 2.3%.
Future Wealth’s View
If it was not for the deteriorating unemployment picture, the Fed would rather stay put with interest rates. Their goal of getting to 2% is getting increasing challenging as the latest reading is more consistent with our report from a month ago on Sep 21st where we had stated that “Our view at Future Wealth LLC is that reality could be quite different – we expect inflation to climb above 3% and unemployment to rise from current levels and we simply do not see a path to 2% inflation levels over the near term.” The link to report is here – https://futurewealthllc.com/
The impact of tariffs cannot be underestimated. Of the 3% inflation number, ~1% is expected to have come from the higher prices driven by tariffs. Everything from prices of coffee to the cost of gardening have climbed, in some cases, by over 10%. Its impact on disposable income coupled with higher unemployment stemming from the shutdown will no doubt begin to reflect in the economy. But, Wall Street is marching along with little regard to what is to come.
The most dangerous words in investing are “It’s different this time”.