Eight consecutive sessions of gains have placed Wall Street in a scenario that very few would have predicted just two weeks ago, when the Japanese stock market was experiencing its worst day in 37 years and the financial markets were trembling at the announcements of a correction. This Tuesday, the mood is very different. After falling 8% from its peak, the winds of the apocalypse have calmed down for the S&P500, the index that groups the main companies in the United States, which is one step away from its historical highs of last July 16, and very close to its best streak of green days in the last 20 years, a series of eight days that was cut short this Tuesday (-0.20%).
A flood of positive data is behind this rapid recovery. Americans are spending almost as if inflation did not exist: the distribution giant Walmart, one of the thermometers of household consumption, has improved its turnover prospects and is trading at record highs; while retail sales rose in July by 1%, their best figure in a year and a half, with more money moving towards the purchase of vehicles, electronic products, household appliances, hardware stores, gardening stores or restaurants, a sign that savings still resist plans that go beyond basic needs, such as eating out.
All this has pushed up technology and consumer firms on the stock market, and has overshadowed the poor employment data for July, which has placed the unemployment rate at 4.3%, its highest level since October 2021The recession drums have been temporarily silenced, although analysts are not celebrating. “The risk of a more pronounced slowdown in the United States, driven by the weak employment data for July, has not disappeared,” says a report by the Swiss bank UBS.
ING Research’s Head of Macro Carsten Brzeski is incredulous at the turnaround in such a short time. “It’s almost unbelievable after the sharp correction two weeks ago,” he says via email. However, he calls for caution. “I don’t think the risk of another correction has disappeared. The events of two weeks ago demonstrated how fragile and nervous the situation is. For now, better-than-expected US macroeconomic data and the idea of a soft landing and Fed rate cuts have stabilized markets, but that offers no guarantee against future corrections. It should not be forgotten that there could be more than one reality check for artificial intelligence,” he warns.
The rally has pushed the S&P up 6.8%, its best rally since October 2022, thus shattering the expectations of those who had been expecting a bigger drop to buy cheap. Timing the market is not easy, because it sometimes means missing opportunities. “Investors lose a lot more money trying to anticipate corrections than in the corrections themselves,” investor Peter Lynch often says.
If these new historical highs are achieved, the S&P would have touched them a whopping 39 times so far this year. The technological Nasdaq is slightly further away from achieving this: it needs to advance around 4% to return to its peak. Those who argue that the stock markets are expensive argue that the increases are based on premises that are not yet fully proven, such as the huge benefits promised by artificial intelligence, or the rate cuts by the Federal Reserve. Therefore, the focus will be on what the central bankers have to say at their traditional annual meeting. in Jackson Hole, Wyoming.
“Investors now think the Federal Reserve needs to cut more to ensure there is no recession (60% say the Fed will make four or more cuts in the next 12 months),” Bank of America said in a report.
In an election year, The movements of its president, Jerome Powell, will be scrutinized with special intensitybecause in a close and polarized campaign like the current one, they can lead to accusations of favoring one candidate or another. Central bankers tend to be very jealous of their independence, although those in political power have their own favorites. During the 2000 presidential campaign, then-Republican Senator John McCain went so far as to say that if then-Fed Chairman Alan Greenspan (much loved by the markets) died in office, he would take it upon himself to straighten him up in his chair and put some sunglasses on him.
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