Wall Street on Friday posted its best week since late June, driven by a combination of a rebound from a weak July jobs report, a surge in tech stocks, a solid batch of quarterly earnings, and hopes of a truce between Russia and Ukraine.
It’s as if nothing happened. A week ago, the President fired the commissioner of the Bureau of Labor Statistics after revised data showed unemployment in a way not seen since the pandemic. Add to that stirring inflation and anxious consumers and one could reasonably see Wall Street taking a breather. But the markets ended the week with another rally on Friday. For the week, the benchmark S&P 500 climbed 2.4%, while the Nasdaq gained 3.9%. The Dow added 1.3%.
But underneath the gloss of an artificial intelligence boom and surging Wall Street profits, all is not well. America is grappling with an alarming jobs slowdown, a frozen housing market, a small business crunch and crumbling consumer confidence.
Future Wealth’s View
The biggest risk to the US economy is that it could be drifting toward stagflation as the impact of trade tariffs begins to surface, potentially restricting the willingness of the Federal Reserve to slash interest rates. While investors have largely shrugged off warning signs until now, data suggest an approaching period of sticky inflation and sluggish economic growth. The arrival of stagflation would put Trump’s administration in the company of that of President Jimmy Carter and the economic afflictions of the late 1970s. The biggest warning sign so far is the historic damage being done to the US dollar—down 8% against a basket of peers.
While Trump will likely dismiss any economic data that he does not like as “fake news” or “rigged data”, the reality is that tariffs are causing prices to go up and consumers are paying for it. Trump may have succeeded in splitting the US economy in two – while Wall Street and Silicon Valley are booming, the rest of the country is suffering a redneck recession. The working classes who helped Trump return to the White House are now suffering.
Employers are pulling back on hiring to a dramatic degree, economic growth is slowing, and consumer prices are rising. And there are strong indications that Trump’s trade and immigration policies are driving all of these trends.
But, Wall Street appears to be in denial.