Two the Point — Riding the Economic Rollercoaster: Resilience Amid Market Volatility

Despite recent market fluctuations, the U.S. economy continues to show resilience, with strong retail sales and solid earnings reports from S&P 500 companies. While interest rate expectations are driving market behavior, we maintain a cautiously optimistic outlook, keeping a close eye on Federal Reserve policy and global risks.

Key Insights:

• Retail Sales: July retail sales increased 1.0% month-over-month, driven by a surge in auto sales.
• Labor Market: Initial unemployment claims fell by 7,000 to 227,000 for the week ending August 10, indicating continued labor market strength.
• S&P 500 Earnings: Over 90% of S&P 500 companies have reported Q2 earnings, with operating earnings per share up 10.9% year-over-year to $60.19, a record high.
• Market Volatility: The S&P 500 is down only about 1.2% from its July 16 record high, as of August 20, despite recent market swings.
• Interest Rates: The Fed is expected to cut the federal funds rate by 25 basis points in September, with further rate cuts this year looking less likely.
• Sector Rotation: A market shift was seen from large-cap growth to small-cap value stocks, driven by changes in policy rate expectations.
• Global Risk: China’s faltering economy could affect global markets; further stimulus is likely needed to achieve its 5% growth target.