By Jeff Anderson, CFA
Retail Sales for August rose 0.7%
Retail sales numbers for August came out this week, surprising many economists and showing the resilience of the American consumer. Consumption accounts for approximately 2/3rds of GDP. Even though most of the stimulus checks are behind us, coupled with concerns surrounding the delta variant, Americans continue to spend (see chart). However, according to the Wall Street Journal, “Americans in recent weeks have cut spending on travel, and multiple artists have canceled concerts. Such spending isn’t captured in retail sales”. With the US consumption responsible for roughly 2/3rds of GDP, it will be interesting to see how mask mandates, capacity restrictions and overall consumer fears play into retail sales in the fall as we enter the Thanksgiving through Christmas shopping (& travel) season.
Rates and the Fed’s Asset Purchases
The Federal Reserve will begin to taper their bond purchases towards the end of the year. The common perception is that US Government bond yields rise when the Fed stops or slows, bond purchases and yields decrease when they buy (think Quantitative Easing or “QE”). From the chart below you can see that opposite is true. The light great vertical bars indicate periods of bond purchases. The blue line shows the yield on the 10-Yr US Treasury note. Yields rise during QE. Why is that? One explanation is that asset purchases lead to investor confidence which in turn supports investors’ risk appetite, driving investors out of safe havens and into risk assets.
Source: Natixis Investment Managers – Solutions
The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index.*******