Thierry Hasse: U.S. strength endures amid challenges and earnings surges
The U.S. stock market continues to hit new highs, with the S&P 500 closing above 5,800 for the first time and the symbolic 6,000 mark just around the corner. What’s remarkable is that these milestones are being achieved despite significant external disruptions. Most notably, Hurricane Milton, a Category 3 storm, hit Florida’s west coast, causing widespread destruction and forcing millions to evacuate. Yet, the U.S. economy remains resilient, withstanding both natural disasters and global uncertainty. As inflation cools and GDP growth remains solid at 2.5-3%, the U.S. economic outlook is the opposite of stagflation, showcasing continued strength.
Chief Investment Officer Thierry Hasse
Inflation – Progress with some bumps along the way
While inflation is trending lower toward the Federal Reserve’s target of 2%, the latest Consumer Price Index (CPI) report reminds us that the path is not always smooth. Over the past 12 months, overall CPI rose by 2.4%, while the core CPI (which excludes volatile components like food and energy) climbed by 3.3%. These figures were slightly above market expectations, indicating that the “last mile” toward the Fed’s target may be more challenging than anticipated.
On the fixed-income side, Treasury yields remained unchanged last week. This stability suggests that the bond market agrees with the Federal Reserve’s narrative—that monetary policy is now in a recalibration phase. Further rate adjustments will be made to bring interest rates closer to the elusive “neutral rate,” a level that neither stimulates nor restricts economic growth.
Stock market hits new highs thanks to strong earnings
Another factor driving the stock market’s momentum is the stellar earnings reports from some of the nation’s largest banks. Last week, JP Morgan, the largest U.S. bank, reported a staggering net income of $12.9 billion for the third quarter of 2024, which translates to more than $140 million in profit each day. This impressive performance pushed JP Morgan’s stock up by more than 4%, nearly reaching its all-time high, with a market capitalization of $632 billion.
JP Morgan’s shares are a cornerstone of Elevage Partners’ focused equity portfolio. We, like many investors, closely monitor the performance of the four largest U.S. banks—JP Morgan, Wells Fargo, Bank of America, and Citigroup—because they provide invaluable insights into consumer spending and corporate activity. The data they track offers real-time information on the health of the U.S. economy, which is crucial for making informed investment decisions. As JP Morgan’s finance chief stated on Friday during the third-quarter earnings call, “Our narrative that the consumer is fine remains in effect.” Coming from typically cautious bank executives, this statement is a strong endorsement of the U.S. economy’s ongoing strength.
Next? Key reports to watch
September retail sales data will be released this week, offering further insights into the financial strength of U.S. consumers. Additionally, the third-quarter earnings season will be in full swing, with major companies like Citigroup, Goldman Sachs, and United Healthcare set to report their results. The big question remains: Can the U.S. stock market continue its upward trajectory? Stay tuned. The strength of corporate earnings and consumer spending will be key indicators of whether the market rally has more room to run.
The information contained herein represents the views of Elevage Partners at a specific point in time and is based on information believed to be reliable. No representation or warranty is made concerning the accuracy of any data compiled herein In addition, there can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Any statement non-factual in nature constitutes only current opinion which is subject to change. These materials are provided for informational purposes only and do not constitute investment advice. Any reference to a security listed herein does not constitute a recommendation to buy, sell, or hold such security. Past performance is no guarantee of future results. The historical returns of any securities and/or sectors mentioned in this commentary are not necessarily indicative of their future performance.