This week’s economic data on inflation and retail sales, along with upbeat comments from consumer bellwether – Walmart, continued to quell economic slowdown fears and gave investors the confidence to dive back into growth areas. For the week, the S&P climbed 3.9%, the Nasdaq Composite gained 5.3%, and the Dow added 2.9%.
A few weeks ago, Wall Street was panicking. Now, the US looks to be in soft landing territory with inflation falling below a crucial threshold. While the US economy is cooling by design, consumers are still spending and more upbeat, further cementing the unmatched status of America’s resilience following the 2020 recession. With pandemic savings largely gone and wage growth cooling, many Americans are increasingly resorting to credit cards and other loans—raising questions about the sustainability of consumer spending, especially as more people are falling behind on payments.
Has the stock market gone too far by being too optimistic?
Future Wealth’s View
In addition to growing credit card debt, Americans are also pulling back on travel while deferring big home renovations. And the housing market remains tepid as long as interest rates remain high. But, the landscape is looking pretty good for Fed Chair Jerome Powell to cut interest rates next month.
It wasn’t long ago that investors earned practically 0% returns on cash. As the Federal Reserve has kept interest rates high to combat high inflation over the past few years, one could earn 5% annual percentage yields on savings accounts and other low risk vehicles. But the obsession with cash has left many investors poorer. An estimated $6 trillion in cash is still parked in money market funds while the S&P 500 has notched over 15% return year to date following a 22% return in 2023.
We could get a pullback in the next few months, maybe even in the next few weeks if nVidia’s results on Aug 28 are not up to consensus. But, for investors with a longer horizon than next week or next month, there is simply no reason to not stay invested in the stock market.
As Warren Buffett often said “Never bet against America”.