The Great Paradox of Markets: US Economy Soars, Yet Stocks Tremble

The Resilient US Economy and Positive Q2 2024 Earnings Season

The US economy continues to show remarkable resilience despite interest rates remaining at decade-high levels.
Similarly, the Q2 2024 earnings season has seen overall positive results for US companies, defying expectations of a potential contraction.
While the market had priced in a likely rate cut in the September 2024 Fed meeting, the latest data seem to challenge this decision.
Faced with this new source of uncertainty, how should one navigate the financial market?

How are Q2 2024 Earnings Performing?

Over 30% of S&P companies have already released their Q2 2024 data, revealing a 10% growth in Earnings Per Share (EPS).
This marks the highest growth recorded by the index since Q4 2021.
The growth is seen across sectors, including the banking industry, usually the frontrunner in earnings season, and even technology companies, currently dominating the market.

US Economy Updates

The US real Gross Domestic Product (GDP), measuring all goods and services produced from April to June, increased at an annualized rate of 2.8%.
Consumer spending drove this growth, pushing the growth figure higher.
The Bureau of Economic Analysis highlights consumer spending as pivotal in this rise, showcasing the domestic economy’s resilience.
However, it raises new questions among investors, particularly regarding the Federal Reserve’s upcoming monetary policy decisions.

Inflation has shown improvement in Q2 2024, with the Personal Consumption Expenditures (PCE) index, a key Fed metric, rising by 2.6%.
This inflation decrease, coupled with low unemployment rates and rising real wages, underpins the economy’s strength.

Stock Market Response

Despite strong economic fundamentals, financial markets have displayed signs of nervousness.
The S&P 500 saw a notable decline in recent weeks, while the Nasdaq experienced a more than 6% drop in the last week.
The source of this market nervousness remains unclear, especially concerning the technology sector, which, yet again this quarter, proved its ability to meet the market’s high earnings expectations built over the years.