EmailThe Fed's effort to pump life into the economy may or may not work. It is certainly pumping up the stock market. S&P futures indicate an up open even after the strong gains yesterday.
The stock market rally continues despite worsening fundamentals. Western Digital warned that revenue will be below expectations. There are likely to be more such warnings through the end of this month ahead of third quarter earnings reports in October. Japan lowered its economic outlook for the second month in a row. Many private economists forecast a decline in third quarter real GDP for Japan.
Inflation is up for consumers. August CPI rose 0.6% as gas prices rose sharply. The core rate of inflation was up just 0.1%.
August retail sales rose a solid 0.9%, but the gain was boosted by a temporary jump in auto sales. Higher gas prices also boosted sales, as the data are not price adjusted. Core retail sales were actually down slightly for August. Recent weakness in hourly wages and a decline in consumer credit suggest that consumer spending is not likely to be a source of economic strength in the months ahead, and not much significance should be placed on this good August retail sales number.
Industrial production data are due at 9:15 ET and the preliminary read on September consumer sentiment from the University of Michigan survey is due at 9:55 ET.
For now, the stock market is all about central bank action. There is a belief that the Fed buying bonds will boost financial asset prices. There is far less confidence that the action will provide any boost to the economy (and thus to corporate profits). There is an old saying that you should never fight the Fed, but whether the Fed can win the fight against the poor fundamentals remains to be seen.
Founder and Chairman, Briefing.com
