Save time by listening to our audio articles as you multitaskThe good news is that the rally is underpinned by, well, good news. As companies’ earnings releases over recent weeks have shown, American consumers still went shopping in the second quarter. On August 16th Walmart reported that households’ spending grew strongly, helping its revenue climb by 8.4% on the year. Gauges of consumer sentiment are picking up.
The bullish interpretation is to assume that a soft landing is under way. In this world inflation will drift down without derailing economic growth, and the Federal Reserve may not even need to raise interest rates quite so quickly. Consumers’ expectations of inflation, even for the year ahead, have fallen sharply. Market pricing suggests that the Fed will probably increase rates at a gentler pace than had been expected earlier in the summer, before it begins cutting them as soon as May.
Companies’ earnings, meanwhile, have not all been rosy. Although investors embraced news of strong earnings from lots of firms, they have also overlooked mediocrity. Alphabet, for instance, reported revenues and earnings that were a little lower than analysts’ expectations. Its share price nonetheless jumped by nearly 8% on the news. And threats to earnings loom ahead. The Fed’s interest-rate rises are yet to have their full effect.
downturns included plenty of breathtaking “bear market” rallies before stock prices resumed their downwards march. In the dotcom bust, theshed a third of its value between March and April 2000 before surging by more than 20%, entering a fresh bull market. The index did not reach its bottom for another two years. This time could, of course, be different. But for that to happen, the good news must keep rolling in.
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