Judging by US indices, which keep reaching new highs, the economy might seem to be thriving. However, the reality is more complicated.
Growth rates are gradually slowing, which is evident not only because job creation reached only 150,000 jobs, below the 165,000 expected.
More importantly, the ISM manufacturing and services indices fell below 50, and the Atlanta Fed’s GDP indicators declined.
The most alarming issue, which surprisingly has not yet raised much concern, is the increasing number of corporate sector bankruptcies due to high rates.
According to S&P Global, June saw a historic spike in US corporate bankruptcy filings, with 75 filings, the highest number recorded in a month since at least the early 2020s.
The 346 total filings so far in 2024 also exceed any comparable figure over the past 13 years. In addition to tight monetary policy, slowing consumer spending weighs on ailing businesses.
For example, the consumer discretionary sector led all others in 2024, with 55 bankruptcy filings in total, 16 of which occurred in June. So it’s not all good in the kingdom after all…
Even Federal Reserve chairman Jerome Powell expressed concern on Tuesday that keeping interest rates too high for too long could jeopardize economic growth.
So, will rates be lowered in September?
The likelihood of a turnaround in monetary policy is growing by the day. As the economy slows, inflation is gradually approaching the 2% target.
However, the Fed remains concerned that easing policy too soon could complicate its efforts. It is best to continue to monitor macroeconomic data.
Meanwhile, the ratio of US growth stocks to value stocks has reached its highest point since the Dotcom bubble, as has the share of the technology sector in the S&P 500 compared to the broader index.
This has led to predictions that the US stock market could suffer a significant drop of around 10% in the coming months.
For now, bad economic news in the US is good for bonds, stocks, and gold. The problem is that this trend takes us further away from a soft landing.
This week, not only the US economic calendar is hot. The new earnings season kicks off this week with reports from big banks such as Wells Fargo, JPMorgan, and Citigroup, which could temper market optimism.
Scott Rubner of Goldman Sachs Group Inc. said today that he foresees a painful two-week period starting in August if corporate earnings fall short.
This article was written by FL Contributors at www.forexlive.com.
