Thierry Hasse: Is the U.S. economy bound for the perfect soft landing?
Once again, “dip buyers” in U.S. equity markets were vindicated last week. The S&P 500 Index, a measure of broad market performance, had its best week of the year, continuing an impressive market comeback from the sharp sell-off experienced at the beginning of August.
Chief Investment Officer Thierry Hasse
One explanation for the sharp sell-off of risk assets at the beginning of the month was the notion that the U.S. economy was experiencing a significant slowdown, with the slowly rising U.S. unemployment rate potentially signaling an imminent recession. But Walmart provided solid reassurance regarding the health of the U.S. consumer. The nation’s largest retailer reported strong financial results that exceeded the estimates of Wall Street analysts. “We are seeing that the consumer continues to be discerning, choiceful and value seeking” in its purchase decisions and that “we are not seeing any incremental fraying of our consumer health,” Walmart’s chief financial officer said during the company’s Aug. 15 earnings call.
Shares of Walmart – which incidentally is a core holding of the Elevage Partners equity portfolio due to the retailer’s strong financial performance, ability to gain market share and a growing online presence – closed the week up about 40% for the year to date.
The retail sales report released by the Commerce Department provided additional evidence of the U.S. consumer resilience, increasing 1% in July from the previous month. Once again the ability for the U.S. consumer to shop was demonstrated and the discussion about a recession stopped. We are back to the perfect soft landing scenario for the U.S. economy.
It’s hard to believe but after seven straight positive sessions, the S&P 500 closed the week at 5,554, only 2% below its record of July 17. Fixed income markets have settled into a new lower trading range as the Federal Reserve will most likely start to reduce interest rates in September. The only debate among fixed income market participants is whether the Federal Reserve should reduce the Fed Fund rate by 0.25% or 0.5%.
This week is the beginning of the traditional summer slowdown before the long Labor Day weekend. Stock market volumes are typically much lower and trading desks have limited staffing. But all eyes will be on the 2024 Economic Policy Symposium to be held from Aug. 22-24 in Jackson Hole, Wyo. This three-day annual international conference hosted by the Federal Reserve is attended by central bankers from around the world. The main discussion this year will be “Reassessing the Effectiveness of Transmission of Monetary Policy” – a dry subject if there is one! However, this year’s edition will be of critical importance as the Federal Reserve chairman is expected to provide the road map for the next phase of the U.S. monetary policy.
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