A Jack Johnson Playlist

Sitting, Waiting, Wishing

Despite the record-breaking length of this economic expansion, inflation has made fewer appearances in the last decade than Eagles Super Bowl wins ever. Consumer inflation in 2019 increased by 2.3%, which is the highest rate since 2011. Additionally, this muted inflation is really only present in certain pockets of the economy like healthcare where prices increased 4.6% last year. For producers, costs increased an even more meager 1.3% last year. 

Moral of the story: Wages increased a mere 0.7% in 2019 while we were seeing record-low levels of unemployment. Even tariffs didn’t have a meaningful impact on consumer or producer prices. If we haven’t seen it yet, I can’t think of what could cause inflation to start picking back up in the near future.  

Good People 

Retail sales posted a strong finish to the year last year, with every major group reporting stronger sales except auto dealers and department stores. In fact, retail sales for 2019 increased more than the average over the last 30 years. 

Moral of the story: The continued strength of the labor market is giving consumers the confidence to spend, which is v important for our economy, given it accounts for about two thirds of our GDP. 

Times Like These 

Believe it or not, earnings season is upon us once again. Not only will companies be telling investors about 2019 results, but will generally guide investors to what they should expect in 2020. This week’s earnings began with the financials as usual, and the strength of the consumer was a common theme that resulted in better than expected 2019 results and fairly bullish 2020 outlooks. 

Moral of the story: Only about 8% of the S&P 500 companies have reported earnings so far but 72% of them were better than expected. There wasn’t much earnings growth last year because of the uncertainty predicated by the trade war with China, but given trade resolutions were signed with ChinaCanada, and Mexico this week and conditions are expected to be relatively stable in the immediate future (at least through the election), companies have slightly more certainty in which they can operate this year. This should result in some earnings growth in 2020, which would be really constructive for a market that’s priced quite richly.