US Retail Sales, Powell and overpriced market

17 jun 2020

The main event of yesterday was Powell's testimony in Congress. More precisely, the first day of testimony. Markets expected his comments for the Fed’s economic outlook issued last week following a FOMC meeting. Powell did not disappoint, saying that a full recovery of the US economy is possible only when the coronavirus is fully taken under control. Against the backdrop of fears of the second wave and the current pandemic peak, which is still not be formed, this is practically a recognition of the fact that economic recovery will be a very long process.

In this light, we recall our recommendation “sell” in the overheated US stock market. According to recent survey from Bank of America, about 80% of professional investors consider the US stock market overvalued. By the way, this is a record value since the beginning of the publication of such surveys.

In fairness, we note that yesterday there were reasons for the growth of optimism in the US stock market. We are talking about retail sales in the United States, which showed the maximum monthly increase in the entire history of observations. However, this is a chain indicator, therefore this record is actually the merit of the low base of comparison, which was formed as a result of a record drop in retail sales in April. So, it's too early to relax. This is also supported by data on industrial production in the USA: grew by 1.4% in May which is twice as low as the average forecast of analysts. That is, there is no explosive growth after the lockdown in the economy yet.

UK labor market data was also released yesterday. The data came out mixed, but the growth in the number of claimant counts, which was almost 2 times higher than the expectations of the markets. In our opinion, this inclines the weight against the British pound. So, our recommendation to sell the pound remains relevant.