The “growth scares” that helped spark steep but short-lived losses for stocks in early August — and then again in early September — are looking like distant memories.
Instead, investors appear to be preoccupied with a new concern: the notion that the economy might be running too hot for their liking.
While recent monthly unemployment data released by the Department of Labor have cemented the notion that the jobs market is indeed cooling, this hasn’t stopped consumers from continuing to spend.
As a result, the economy remains in robust shape, helping to push Treasury yields higher. Higher borrowing costs are anathema to stock valuations, because they increase the cost of carrying debt for corporations, making it more difficult for them to finance capital investment and, perhaps more importantly, share buybacks.
Economic data released this week appear to have reinforced this notion, with Friday’s retail sales data showing consumers continued to spend over the last couple of months. Adding to hopes for an economic revival, a Fed manufacturing gauge of activity in New York State showed an unexpected rebound, showing signs of a life in a corner of the economy that has struggled for years.
Asked whether this means “good news” for the economy is becoming “bad news” for stocks, George Cipolloni, a portfolio manager at Penn Mutual Asset Management, responded in the affirmative.
Source: marketwatch.com / Joseph Adinolfi