Macro & Market Musings are weekly insights on Growth, Inflation, Policy and Looking Ahead from Annex Wealth Management’s Chief Economist, Brian Jacobsen. Brian, a frequent contributor on CNBC and Fox Business News, hosts regular updates on the economy and markets. Check our events page for Brian’s next live event.
Growth: Nvidia Envy
Nvidia is on pace to double its sales for the second year in a row. It had the right product at the right time and it can pretty much name its price. Companies across the economy aren’t in the same enviable position as Nvidia, though. They have to compete fiercely. Walmart is growing its share of high-income earners. Despite the resolution of election uncertainty, consumers are still hypersensitive to price and are just slowly regaining some confidence in the outlook.
Inflation: Profits Before Price
A superficial analysis says tariffs are inflationary. Slap a 60% tariff on something and the price goes up 60%, right? Wrong. First, sellers might not be able to pass on that price increase to price-conscious consumers. Profit margins can fall before prices rise. Second, currencies adjust. Less demand for Chinese goods means less demand for their currency, which means their currency goes down in value. The decline in value can serve as another way to dampen price increases consumers see.
Policy: “No Rush” Doesn’t Mean “No Cuts.”
Fed officials have talked a lot about how they don’t have to be in a rush to cut rates. That’s true. Growth has been better than expected and progress on inflation is anything but a straight line. But “no rush” doesn’t mean they won’t cut. They just don’t have to cut in big chunks or at every meeting. Tell me what the data on employment and inflation will be and I’ll tell you if they’ll cut in December. As it is, they could easily cut 25 bps and then shift to an every-other-meeting pace of cuts. That would still be consistent with the idea of not being in a rush.
Looking ahead: Trading One Uncertainty For Another
Election uncertainty has been replaced with policy uncertainty. Some of the fog is slowly lifting as President-elect Trump builds out his cabinet. It’s still early days, but it looks like his picks are a mix of traditional and–shall we say–nontraditional picks. Don’t plan on clarity on the timing or the specifics of potential policies that will actually be implemented anytime soon. That will likely inject just enough uncertainty periodically to have the markets experience occasional bouts of volatility.
