Positive economic data gives investors reasons to be optimistic

After months of doom and gloom in the markets, investors have found reasons to be optimistic — sending the S&P 500 up 12% over the past month.

Supply chains are getting better…

Supply chain issues are a problem we’re all too familiar with. After nearly two years of non-stop surprises (i.e., COVID, Russia) — shipping times and delivery costs have come down significantly.

• The cost to deliver a 40-foot metal box across the ocean is down 45% from its peak last fall.
• Congestion in U.S. ports has fallen 80% from its peak last November with order backlogs clearing at a faster rate.

This brings good news for nearly all players:

1. Businesses — whose expenses have risen from higher fuel and delivery costs.
2. Consumers — who have been hit with rising prices from companies trying to offset increasing costs.
3. Investors — whose stocks have been hit with lower profitability on those rising business costs.

Thank you, China

China’s economy has slowed dramatically due to a major property crisis and a zero-COVID policy. Chinese retail sales grew 2.7% in July — far short of the 5% expected.

But we’re giving positive vibes today, so let’s spin the narrative. Per The Overshoot’s Matthew Klein, China’s problems provide an upside for the rest of the world: Deflationary pressures.

• China is one of the largest consumers of metals, energy and food.
• They consume 40**%** of the world’s copper and ~13.2% of the world’s oil consumption.

Rising prices of these commodities were major contributors to high inflation. But now that demand is falling, so are prices.

Rest of the world: China, just don’t slow too much to cause a global crisis, k?

Investors: What this means for you

The Fed has indicated that they won’t pull back on interest rate hikes until inflation falls substantially. But signs of slowing inflation have made some analysts optimistic:

• JPMorgan’s Marko Kolanovic thinks inflation will be cut by half later in 2022 (Insider).
• It’s not just the U.S. where it’s getting better. The number of countries seeing core inflation rising has fallen from 80% to 70%.

The pessimist: Still, many economists argue that inflation hasn’t come down nearly enough to change the pace of rate hikes. Many noting that July’s 8.5% inflation is still too far above the Fed’s 2% target.

The optimist: Slowing inflation is the first step to sustainable market recovery, and in the long run, the S&P 500 never disappoints.