The week in review
- ISM Services PMI rose to 51.4, beating expectations
- Initial jobless claims fell 17k to 233k
The week ahead
- CPI
- PPI
- Consumer sentiment
Thought of the Week
The S&P 500 is still recovering from the recent sell-off, but meanwhile, its constituents are on track to report 12% earnings growth. In addition to the numbers, the earnings season provides a unique perspective on the health of the economy. Continued growth requires continued spending, and management commentary offers insight into two of the three sources of that spending: consumers and corporations. This week’s chart aims to highlight the cautious optimism companies have expressed over the past few weeks. There’s been a slight uptick in mentions of an economic slowdown, and consumer spending is a bit more in focus, while capital expenditures are less so. The changes are small, however, and there hasn’t been much chatter about job cuts, indicating overall concern is muted.
On the consumer side, executives have highlighted a divergence in spending behavior across income brackets. While growth remains robust at the upper-end, lower-end consumers appear increasingly value conscious. They’re still spending but just allocating dollars more carefully. This strong consumer spending has translated to strong corpo- rate earnings. At the same time, secular investment trends like AI, the energy transition and re-shoring have and should continue to boost capital expenditures. Balance sheets also remain robust, reducing the risk of something breaking. Unlike typical late-cycle conditions, consumer spending has been financed by real wage growth rather than borrowing, and companies are still spending down the cash they accumulated during COVID. In the storm of recent volatility, investors should anchor to the fundamental truth highlighted this earnings season: consumer and corporate spending is moderating but looks durable, so growth should be too.
Chart of the Week: Bloomberg, J.P. Morgan Asset Management.
Thought of the week: Bloomberg, J.P. Morgan Asset Management. *2Q24 data is based off of the 450 companies that had reported on August 8, 2024.
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Originally Posted August 5, 2024 – Weekly Market Recap
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