Last week’s producer price report provided compelling evidence of a moderation in cost ‘pressures’ that could feed into even lower inflation in the US during 2020. The prospect of weaker producer and consumer price numbers feeding through to even bigger falls for the consumption deflator measure of durables, will make it harder for the Fed to hit the 2% inflation target in 2020.
The softer inflation numbers for goods have coincided with a marked deceleration in retail sales growth. At first glance, it would appear that consumer spending is going to pull GDP growth lower in Q4.
Nevertheless, investors able to ‘tune out’ from the relentless updates on the ‘trade war drama’ have been able to focus on the more important shifts in technology that are driving innovation and the US economy. The S&P 500 IT index is now up 43.98% for the year-to-date. The Philly SOX index has risen further, by 55.51%.
It is wrong to see the technology race between the US and China in terms of ‘winner takes all’. Both countries can succeed. US politicians are worried that China is ahead in 5G, but the US has undoubted strength in semi-conductors. It is hard to see the Philly SOX index repeating this year’s spectacular rise in 2020. Nevertheless, the advances in core chip technology will create many more opportunities for IT companies in the US. The bull market in technology shares is not over yet.
