At first glance, things looked pretty grim for the market today.
In China, consumer prices rose just 1.6% in September, representing a five-year low. Wholesale prices fell 1.8%, steeper than the 1.6% decline predicted by economists. There are also signs that China’s housing market is cooling. In the U.S., retail sales unexpectedly slumped 0.3% in September, below economists’ expectations of a 0.2% gain. Wholesale prices declined 0.1%, with the core measure (a key metric for inflation) remaining unchanged. Business inventories also rose less than expected, reflecting a 0.2% increase.
The mixed economic data, coupled with anxiety about falling energy prices and the Ebola outbreak, is what’s weighing on the broader market today. But first impressions can be deceiving. And while the financial media is capitalizing on the “glass half empty” narrative, things aren’t nearly as awful as these headlines are making it out to be.
Take the Ebola scare, which has put pressure on airline stocks. Sadly, two health care workers who treated Thomas Eric Duncan in Dallas have tested positive for Ebola, but the CDC has been taking strong measures to contain the spread of the virus. Those who travel on commercial flights are at little risk; I myself have visited Dallas in recent weeks and noted that the airports remained busy as usual.
As for the mixed economic data in China, this shouldn’t come as a huge surprise. The Chinese government has changed its policy away from stimulating bursts of growth in the near-term towards encouraging sustainable long-term growth. Domestic consumption continues to grow, while manufacturing is no longer the primary driver of growth.
In the U.S., while the economy is recovering in fits and starts, it is still progressing. What we all need to remember is that September’s pullback in retail sales followed a 0.6% gain in August–the largest such increase in four months. And while businesses are keeping a tight rein on their inventories, this will likely lead to a period of restocking before the holiday rush.
Finally, the fact that we’re not seeing inflation at the wholesale level is actually good news for those relying on the low interest rate environment (including us). With the U.S. economy still stumbling at times, the Fed is going to be even more hesitant to raise rates any time soon.
As the old saying goes, we shouldn’t judge a book by its cover. And we shouldn’t judge this market by the headlines, which are only covering a piece of the story.