IT shares were pulled lower on Friday by disappointing guidance from Micron Technology.
It is worth emphasising: the rapid migration to 7nm chips is providing a big lift for Taiwan Semiconductor Manufacturing Company and is a sign of how the industry is changing. Some of the smaller semi-conductor companies that specialise in idiosyncratic chips, but fell in response to Micron’s lower guidance last week, may bounce back.
Nevertheless, the key to whether the US stock market can make new highs lies with the trajectory of US consumer demand.
The survey data for the US economy has not been entirely positive for September. A weak Conference Board report and a dip in the employment index for the Markit services PMI portend weaker consumption and hiring.
Nevertheless, the breakdown of the PCE report suggests that discretionary spending is holding up. Consumption for durable goods rose by 0.84% m/m in July and 0.94% m/m in August.
Retailers have also benefitted from the strong consumption numbers witnessed for much of this year. Last week’s revised GDP report for Q2 showed that retail trade profits (with IVA only) rose 24.2% in the first half of 2019. Retailers offer an important example of how the economy can operate at close to full employment: the number of jobs in retail trade has continued to fall and yet wages have risen strongly this year.
