Source: Barron's Chinese
The current U.S. economic and market conditions are indeed improving, but the price is the deterioration of the economy and market in the long term.
Last week was the best week for U.S. stocks this year. The August 5 plunge seems to have become a distant memory, and other signs of recovery are emerging: By Michael Hartnett ) led a Bank of America research team noted that mortgage refinancing activity has picked up significantly; the latest survey from the National Federation of Independent Business (NFIB) showed that small business optimism rose to the highest level since February 2022 level.
The decline in bond yields has been cited as the reason for the return of "animal spirits", with the benchmark 10-year Treasury note yield falling below 4% from a peak of nearly 5% late last year, mortgage loans Interest rates subsequently fell to 16-month lows. However, Bank of America's research team also pointed out that the decline in borrowing costs has not yet translated into increased home purchases or a pickup in small business capital expenditures. Well, since things can't get any worse, maybe things are getting better.
The latest survey released by the University of Michigan on Friday (August 16) shows that U.S. consumer sentiment seems to be improving. After Kamala Harris replaced Biden as the Democratic presidential candidate, the improvement in consumer sentiment was most significant among voters and independent voters who were encouraged by the Democratic Party. (Consumer sentiment in favor of Republicans, however, has declined.)
A week ago, a consumer survey conducted by AlphaWis for Morgan Stanley found similar results to the University of Michigan survey. The survey found that consumer sentiment among self-described "middle-of-the-road" consumers has improved the most, with the proportion of respondents who believe the U.S. economy will worsen falling to 36% from 47% a month ago, and the proportion of respondents who believe the U.S. economy will improve. rose from 28% to 37%.
Democratic Americans can finally answer with certainty Ronald Reagan’s famous question when he and Jimmy Carter were running for president in 1980: Are you better than four? Were you better off a year ago?
Jeremy Horpedahl, director of the Arkansas Center for Research in Economics, pointed out in an article that as of July this year, the CPI had Adjusted real wage growth was 0.3%. Before Democrats start celebrating, they should note that real wage increases under Trump were 6.6%, according to Hopedahl's research.
In terms of investment, Alicia Levine, head of BNY Wealth’s equity investment business, has been bullish since the market turmoil in early August and is also optimistic about the market’s performance in September. , she pointed out that September is “never a calm month” for markets, but with the Federal Reserve likely to cut interest rates by 25 basis points and at the same time, the U.S. economy appears to be achieving what many are calling a “soft landing,” she The S&P 500 is expected to end the year at 5,700, up 2.6% from last week's close and just above the index's peak of 5,669.67 in mid-July.
Levine believes that investors who continue to invest in cash equivalents with yields above 5% face the risk of declining returns (the size of money market funds’ assets under management hit a new record of $6.15 trillion in the latest week ), she urged investors to switch to tax-exempt municipal bonds with maturities of five to seven years, where yields on municipal bonds have been falling less than those on long-term U.S. Treasury bonds.
In addition, considering that U.S. stocks usually rise strongly in presidential election years, Strategas principal Jason DeSena Trennert believes that in the November 5 election, Shorting risk assets before Sunday could be dangerous, he wrote in a note to clients. It is a common bipartisan practice for a sitting president to take some measures to promote economic growth in order to win re-election, but "the actions taken by this administration This type of action reaches a level unprecedented in U.S. economic history."
The Internal Revenue Service (IRS) has restarted payments of the Employee Retention Credit, which previously injected $232 billion into the U.S. economy, but Trennert said it was riddled with fraud. Strategas’ Washington research team estimates that the first tranche of the program, totaling $5 billion, will be paid out in early September, with another $20 billion due by the end of the year.
On the other hand, Trennert pointed out that the United States’ strategic petroleum reserves have fallen to their lowest level in 41 years. With the Middle East on the brink of war, the release of strategic petroleum reserves has reduced Americans’ gasoline supply. fee. At the same time, the U.S. Treasury Department is selling short-term Treasuries to hold down long-term interest rates, a short-term strategy designed to mask the long-term economic consequences of sustained budget deficits as high as 7% of GDP, Trennert said. Strategy. ”
The day will come sooner or later to pay for these fiscal excesses, “In the short term, however, the combination of large fiscal deficits, reduced issuance of long-term bonds, and Fed rate cuts are likely to Give a boost to the performance of financial assets," Trennert said.
For now, the situation in the U.S. economy and market is indeed improving, but this may be at the expense of a deterioration in the economy and market in the long term.
Edmund