U.S. equity markets are having one of the best starts to a year in 25 years. After giving back about 2.5% from the 2023 market peak on June 16, the S&P 500 closed last Friday up 13.7% YTD.
- The U.K. startling inflation number last week most likely was a contributor to stock market profit taking, thereby driving markets down for the week.
- The outlook continues to be broadly positive for economic growth, declining inflation, and positive earnings per share growth, with hiccups from time to time in incoming data.
- Consumer sentiment is up 28% (y/y) (U of Michigan), with one-year forward inflations expectations down, which is particularly helpful to the Fed.
- FactSet reports Q1 US earnings season has resulted in a 3% pick up in year ahead EPS estimates to $232, and full year 2023 EPS estimates are now forecast to rise 2%.
The conversation about recession continues:
- Many are convinced of its inevitability, pointing to a further decline in the Leading Economic Indicators Index and the still inverted yield curve which contributes to lower bank lending and tighter credit markets.
- Fed funds futures markets are showing a 75% chance of another rate increase at the end of July, and negative M2 money supply growth will start to create an additional drag on economic activity.
- On the other side, the Atlanta Fed Q2 GDP nowcast is close to 2% with both housing and inventories expected to add to Q2 GDP growth.
- Unemployment remains low and consumer balance sheets are strong, with low debt loads and unspent savings from Covid relief transfers. So, consumer spending will remain a positive contributor to GDP growth.
The India Prime Minister’s visit to the U.S. last week resulted in further strengthening of U.S.-India ties in the US-led vs China-led global economic realignment. While India will continue to capitalize on its non-aligned political stance in buying discounted Russian oil, it will deepen its relationships with the U.S. for both economic and political reasons.
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