Resilient US Economy Lifts Stocks: Morning Brief

The US economy continues to show surprising resilience, pushing stocks higher, as evidenced by the September jobs report, which exceeded expectations. This report capped a trend of positive economic data that has been unfolding for over two months.

Contrary to the belief that the economy would slow down significantly, the US economy has maintained enough momentum to avoid needing support from the Federal Reserve. Concerns about a potential “hard landing”—where the economy might crash due to the Fed’s aggressive rate hikes—have been replaced by talks of a “no landing,” where inflation risks reemerge and the economy continues to grow.

This shift in narrative has left financial markets somewhat unsettled. After an initial 1% gain on Friday following the jobs report, the S&P 500 experienced a 1% drop on Monday, reflecting the market’s confusion about the economic outlook.

As the economy remains stable, market investors are adjusting their expectations, now anticipating fewer interest rate cuts from the Fed. According to the CME FedWatch Tool, a week ago, investors were pricing in a 34% likelihood that the Federal Reserve would cut rates by half a percentage point in November. However, this has become less likely as the economy shows continued growth.