The S&P 500 on Friday rebounded from its worst week of the year to post its best week of the year. It was also the first time since June 2022 that the benchmark index fell at least 4% in one week and then rallied more than 4% the next. Last week’s selloff had been driven by concerns over economic growth after a slew of soft data on the labor market, and historical September weakness. This week the narrative reversed after traders received inflation data that cemented expectations of a Federal Reserve interest rate cut next Wednesday. For the week, the S&P surged 4.0%, while the Nasdaq Composite  jumped 6.0%. The Dow climbed 2.6%. 

Central banks around the world have almost tamed the pandemic ignited surge of inflation, with the European Central Bank embarking on its second interest rate cut as growth slows. The US Federal Reserve next week is poised to begin cutting rates as it weighs the lingering vestiges of inflation with data indicating the economy is cooling.

How will the stock market behave for the rest of the year is the big question?

Future Wealth’s View

Just last week, we titled our report “Time to go shopping” and it turned out to be propitious. With a Fed cut coming up, the markets are gearing up for another leg up going into the end of the year, with the wild card being the elections. But all is not well with the consumer.

Despite a recent uptick in consumer sentiment, a record share of US households are uncertain about the economic outlook, and most expect inflation to take a bigger chunk of their incomes. While the pace of inflation is cooling, prices remain much higher than before the pandemic. The consumer price index has surged 21.5% from the end of 2019. And while incomes have also increased, consumers still say they’re not getting ahead. As stock prices approach a record, the odds Americans see of a comfortable retirement are nevertheless at their lowest level since 2013.

This is important because consumer spending makes up a big chunk of the GDP and any cut back in consumer spending trickles down to company earnings and consequently, their stock price.