Despite emerging pressures in the labor market, the U.S. economy continues to demonstrate resilience, with robust growth supporting corporate profits. Anticipated Federal Reserve rate cuts and the historically favorable political balance could provide additional stability in upcoming months.
Key Insights:
- Labor Market: The Conference Board’s August survey indicated a decline in the labor differential (jobs easy to get vs. hard to get) to 30.7, down from 37.0 in July, suggesting early signs of pressure.
- Economic Growth: U.S. real GDP growth for Q2 was revised to an annualized rate of 2.4%, continuing a trend of solid economic expansion. Corporate profits expanded by 4.3% year-over-year in Q2, underpinning economic resilience.
- Federal Reserve: Markets are pricing in about a 75% probability of a 25-basis point rate cut at the September 18th FOMC meeting, with the Fed likely to begin its easing cycle. Fed Chair Powell’s recent Jackson Hole speech emphasized the need for policy adjustments, aligning with market expectations of further cuts.
- Political Landscape: Historical data from 1950-2023 shows the S&P 500 averaged 15.72% annualized gains with a Democratic president and a divided Congress, and 12.20% with a Republican president and a divided Congress, highlighting the stability offered by a balanced power structure.
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