The trade spat between the US and China has not hurt US companies, it would appear. Recent revisions (annual update for real GDP, released July 26th) had seen profits revised down sharply.
However, profits rose unexpectedly in the last quarter. Profits from the rest of the world were very strong, climbing 11.7% q/q, hitting a fresh all-time high.
Consumption remains strong and investment is turning up again. The jobs market is showing no signs of slowing either. The Conference Board’s jobs plentiful index jumped in August from 45.6 to 51.2, a new high for the current economic cycle.
Core PCE inflation (ex-food & energy) has remained rooted below 1.6% for five consecutive months. On many fronts, this truly is a ‘goldilocks’ economy.
The lower print for the core deflator partly reflects the lower rise in prices for medical care services, compared with the CPI measure. The latter is less comprehensive than the deflator. However, the durables deflator is still falling too, despite the rise in tariffs.
The stock market continues to hang on every twist and turn in the Trump – Xi trade spat. Hong Kong’s protests need to be watched closely too. The weekend violence on Hong Kong’s metro trains marks a worrying escalation of the political crisis. If the local police force cracks under the mounting strain, intervention by mainland China will follow. That will be a painful, negative event for stocks.
However, there is little domestic reason to sell US stocks.
