The U.S. economy grew at its fastest pace in nearly two years in the third quarter as higher wages from a tight labor market helped to power consumer spending, again defying dire warnings of a recession that have lingered since 2022.

Gross domestic product increased at a 4.9% annualized rate last quarter, the fastest since the fourth quarter of 2021, the Commerce Department’s Bureau of Economic Analysis said in its advance estimate of third-quarter GDP growth. Economists polled by Reuters had forecast GDP rising at a 4.3% rate.

But, the inflation gauge that is closely monitored by the Federal Reserve showed price increases remained elevated in September amid brisk consumer spending and strong economic growth. For September, inflation was unchanged at 3.4% from August.

On top of all that, earnings season has been a mixed bag – Tesla down, Netflix up, Google down, Microsoft up, Meta down.

We may be in for a rough ride through the rest of the year.

Future Wealth’s View

The robust economy complicates the Fed’s fight to dial back inflation. Fed Chair Powell stated – “We are attentive to recent data showing the resilience of economic growth and demand for labor,” adding that such growth could “put further progress on inflation at risk.” That comment was enough to begin a sell-off in the stock market that has now put both the Nasdaq and S&P 500 into correction territory. The markets now expect the central bank to raise rates one more time this year.

The stock slide has been particularly hard on the Magnificent 7 (Microsoft, Amazon, Facebook, Alphabet, NVidia, Apple and Tesla) that have had a magnificent slide in the past few weeks. But, investors really need to look beyond the stock performance and look inside the financials of these companies. Doing so, will provide clues to whether these companies are struggling, overvalued or simply gifting investors at price points that will be the envy of others in a few years.

Last week, we had stated the virtues of being patient. This week has tested our patience even more. The next few weeks could be painful.