Since the earliest days of easing and stimulus back in 2009, the primary concern of all this unprecedented intervention by the Federal Reserve is that it would trigger a wave of crippling inflation. Curiously, as the latest CPI data show, the tide is still a long way out on that front, as official inflation remains non-existent. In fact, if anything, the 1.4% year-on-year inflation rate reported in July will stock worries that prices are collapsing, rather than overheating.
At the same time, with consumer confidence struggling, continued weakness on the jobs front, and incomes barely growing, expectations for discretionary spending have been muted. And yet chain stores like Target (TGT) have topped estimates, while monthly data out earlier this week saw retail sales posting their best month since February.
It's enough to confound even the most seasoned market strategist, many of whom have sighed a proverbial "what gives?" in the face of such unanticipated resilience.
''We've been hearing for years that the inflation genie has been let out of the bottle because of what the Fed has been doing and inflation is going to terrorize us," my colleague Aaron Task says in the attached video. He argues that — so far — the forecasts for doom have been all wrong, and that reports of the consumers' demise have been very exaggerated. "Maybe it's going to happen, but at this moment, if I'm Ben Bernanke, I'm saying 'I've got plenty of room to maneuver.'"
Of course, this is not the first time that the so-called consensus expectations have been the polar opposite of what actually happened in the market. The rally in Treasuries following the nation's unprecedented rating cut also comes to mind as a recent upside-down prediction, as is the oft repeated belief that high oil prices were going to crush consumer spending.
What's funny is how easy it is to rattle off a list of headwinds that are crimping stocks and/or consumer sentiment but how hard it is to assemble a list of tailwinds that are propelling the consumer onward.
As is so often the case, good news is really just the absence of bad news, and as long as things aren't getting worse, that's good enough for me.
"It's enough for a lot of people who had been keeping their hands on their wallets for a while to say, okay, I feel a little bit more comfortable about spending some money," Task says. Nowhere is this more pronounced than in the hot-then-cold-then-hot-again performance of the retail sector (XRT), which is beating the benchmark S&P 500 for the year but lagging by a two-to-one margin over the last three months.