After two very busy days for markets, Thursday will bring us a bit of a lighter schedule ahead of Friday’s big jobs report for July.
On the economic calendar, highlights will include the weekly report on initial jobless claims and readings on the services sector from Markit Economics and the Institute for Supply Management.
Expect markets to also remain focused on results from Tesla (TSLA), released after the bell on Wednesday, which beat expectations on both the top and bottom lines. Shares of the company were up better than 6% in after-hours trade on Wednesday.
This news will follow what was a mixed and sort of weird day in markets on Wednesday. The Dow cracked 22,000 for the first time, closing at the 22,016 to mark a new record while the S&P 500 and Nasdaq were little-changed.
The gain in the Dow was almost entirely attributable to the gain in shares of Apple (AAPL), which rose 4.7%, or $7.09 per share, adding about 50 points to the Dow.
Meanwhile, overall market internals were not impressive on Wednesday as the advance-decline line favored decliners by a margin of about two-to-one. Notable losers on Wednesday also included Chinese companies listed in the U.S. after reports the Trump administration was looking at Chinese intellectual property rules.
Amazon and inflation, again
Back in June when Amazon (AMZN) announced plans to buy Whole Foods (WFM), some — including Federal Reserve officials — asked whether this would increase deflationary pressures in the economy.
The thinking here is fairly straightforward — if Amazon is known for low prices, and aggressive pricing, would it bringing this strategy to an upscale grocer at scale impact prices across the economy? The answer is no, but it’s the sort of idea that comes up from time to time partly because aggregate economy-level inflation is often misunderstood and much of what people seem to think about these days comes back to Amazon.
(And when The Onion is spoofing the business world’s obsession with how Amazon is destroying seemingly anything in its path, you know the hype has gone too far.)
In a note to clients on Wednesday, Goldman Sachs economist David Mericle again takes up something resembling this line of thinking, answering concerns over the internet’s role in the U.S. economy’s current bout of disinflation. (The Fed’s preferred measure of inflation, “core” PCE, is running at about 1.5% year-on-year, below its 2% target.)
Despite the large role the internet plays in our lives socially and culturally, online shopping accounted for about 8% of retail sales in 2016 and e-commerce comprised about 4% of revenue for industries included in the government’s 2015 survey of the services industry.
Mericle goes through three ways that online shopping cut take down the price of living and, by extension, inflation — (1) an outlet substitution effect if consumers switch their purchases to cheaper online sellers; (2) an inflation differential effect if prices rise more slowly at online sellers than at offline sellers; and (3) a spillover effect if competition with online sellers forces offline sellers to cut prices.
None of these, however, are quite the force for lower prices that they might appear. When big box retailers like Walmart (WMT), for example, rose to prominence, the switch to a cheaper seller of a good did not necessarily take down the price of that good across the category because the price difference only existed at this one location, not across all retail outlets selling this good. Amazon might sell books at a lower price than Barnes & Noble (BKS), for example, but Barnes & Noble still sells books at MSRP, thus buoying overall inflation on book prices.
In the end, Mericle finds that, “we see little evidence for the hypothesis that the Internet is a major deflationary force.”
“The most intuitive and direct effect of e-commerce on the cost of living—the emergence of lower-priced online sellers—is not even captured in the official price indices,” Mericle adds.
“While spillover effects to other retailers would be captured, these effects are not necessarily larger today than during the rise of big box retail.”
Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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