Earnings continue nicely — it looks like th S&P 500 will deliver earnings growth of around 17%, which is very good. Looking ahead, analysts do not expect these above-average growth numbers to continue, with expectations for the next reports to be more like 8% to 9%. Still good, but average.
The big news last week was the inflation report which came in a bit hotter than expected, and retail sales which came in lower than expected. This, of course, is interpreted through the lens of what the Fed might do — doubts are rising about whether further rate cuts can happen in the near future. There is also concern that the US consumer is beginning to struggle.
Let’s Connect
Overall, as I have said before, the US economy appears to be at a crossroads. Most of the underlying data is not positive, yet earnings have been strong. Investors and CEOs are worried about the impact of tariffs, but pinning down what that impact may be is difficult. In all, I am in a wait-and-see mode. I would like to see employment improve and earnings growth continue, but I am currently seeing several classic recession signals, and that does have me worried about adding risk.
Chart of the Week
There has been quite a lot of talk about the sustainability of US federal government debt. One difficulty in measuring things like “sustainability” is that there is no agreed-upon model that can tell when debts become unsustainable. As rates have increased over the past several years, the interest cost of US debt has more than doubled. As it stands, the US will be paying more than $1 trillion next year just on interest costs.
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