Archive for August 2024

While some indicators have become more bearish in recent months, we remain cautiously optimistic for a soft-landing scenario, especially as the Federal Reserve appears more committed to cutting rates in the coming months.

Last week, stocks gained ground as July’s inflation came in softer than expected, and retail sales exceeded forecasts, easing recession worries. The Consumer Price Index showed annual inflation at 2.9%, with core inflation at 3.2%, both down from June. The Producer Price Index also reflected a sharp drop in producer inflation. Meanwhile, retail sales surged by 1% month-over-month, led by auto-related purchases, fueling hopes for a “Goldilocks” economy. Consumer confidence rose slightly in August, as consumers cited recent changes in perceptions about the upcoming presidential election.

On the other hand, the labor market is showing signs of softening, with the highest level of insured unemployed persons since November 2021. Despite this, some metrics like the Employment Trends Index suggest this softening represents a normalization of the labor market rather than moving towards a full-blown recession. Q2 earnings have been largely positive, with most sectors surpassing expectations, though recession indicators remain mixed, keeping our market view cautious.

Stocks saw a sell-off last week due to intensified recession concerns following a weak July employment report and other bearish indicators, coupled with the absence of a definitive timeline for rate cuts from the Federal Reserve. The July Fed meeting left policy unchanged but hinted at a potential rate cut in September, with the market now pricing in a 79.5% chance of 50 basis points of cuts.