America’s biggest retailer will be the market’s biggest story on Thursday.
Earnings from Walmart (WMT), due out before the market open, will be the day’s big highlight with investors looking for same-store sales growth of 1.7% in the third quarter, matching the pace of growth seen in the second quarter. Walmart shares were trading just below a record high on Wednesday ahead of results and the stock has gained 30% year-to-date.
On the economics side, the calendar is a bit busy with the weekly report on initial jobless claims due out, as well as October readings on import prices, industrial production, and the November reading on homebuilder sentiment.
Investors will also be keeping an eye on the stock market more broadly, as this week has seen some notable weakness in equities amid concerns that recent declines in junk bonds yields could signal trouble for the broader economy.
In an email on Wednesday, Torsten Sløk, chief international economist at Deutsche Bank, said “I’m getting client questions whether the current sell-off in US high yield will cause a US recession and the answer is no.”
Adding, “To be sure, earnings have for structural reasons deteriorated somewhat in a few sectors (telecom, healthcare, and retail) but we are not seeing any evidence of a recession or a slowdown in the macro data for GDP, consumer spending, capex spending, ISM or consumer sentiment.”
‘As good as it gets’
Late last month, Goldman Sachs equity strategist David Kostin was writing about “peak growth” in the economy and the potential for poorer stock returns down the lines.
On Wednesday, Kostin’s colleague in Goldman’s economics department, Jan Hatzius, wrote about the global economy and how the growth we’re seeing right now is “as good as it gets.”
“For the first time since 2010, the world economy is outperforming most predictions, and we expect this strength to continue,” Hatzius writes.
Hatzius adds that, “On the supply side, we have also seen tentative signs of a rebound in productivity growth from its dismal post-crisis trend.
“Nevertheless, spare capacity is diminishing rapidly—and already exhausted in a number of advanced economies, including the US. There, the question is no longer whether output will overshoot potential, but by how much.”
The output gap, or the difference between what economists estimate potential GDP is versus what actual GDP growth is, has been negative since the crisis and an argument from some economists that central banks and governments need to do more to ensure economic recoveries continue.
And in Hatzius’ outline, we are soon going to be looking at a global economy that is exceeding its potential. Which seems like a good thing, but will likely lead to higher inflation as capacity is taken up in labor markets and supply chains. Higher inflation, in turn, is likely to lead to higher interest rates. And higher interest rates can choke off economic cycles before they overheat.
It is this cycle that leads the current economic assessment to become “as good as it gets.” Things are good and still improving, but growth and inflation are not running at levels that warrant active management from monetary or fiscal authorities. That day, however, will come. Which is why now is the time to appreciate the economic moment.
Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland
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