Despite recent market fluctuations, the U.S. economy continues to show resilience, with strong retail sales and solid earnings reports from S&P 500 companies. While interest rate expectations are driving market behavior, we maintain a cautiously optimistic outlook, keeping a close eye on Federal Reserve policy and global risks.
Key Insights:
- Retail Sales: July retail sales increased 1.0% month-over-month, driven by a surge in auto sales.
- Labor Market: Initial unemployment claims fell by 7,000 to 227,000 for the week ending August 10, indicating continued labor market strength.
- S&P 500 Earnings: Over 90% of S&P 500 companies have reported Q2 earnings, with operating earnings per share up 10.9% year-over-year to $60.19, a record high.
- Market Volatility: The S&P 500 is down only about 1.2% from its July 16 record high, as of August 20, despite recent market swings.
- Interest Rates: The Fed is expected to cut the federal funds rate by 25 basis points in September, with further rate cuts this year looking less likely.
- Sector Rotation: A market shift was seen from large-cap growth to small-cap value stocks, driven by changes in policy rate expectations.
- Global Risk: China’s faltering economy could affect global markets; further stimulus is likely needed to achieve its 5% growth target.
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