In the US, weakening employment poses risks to both consumer expenditure and growth, while in China both the consumer and the property market are at risk. The European consumer is more confident, despite a tougher business environment.
For the equity market, the past 12 months have been exceptionally strong and led by the US: the S&P 500 is 25% higher, with the first half of 2024 the strongest since 1900. The consensus sees a 15% uplift to S&P 500 earnings between Q1 and Q4 2024. However, economic momentum is slowing, prompting profit warnings and share price drops from consumer companies: Nike is down 20%, Walgreen 15%.
The S&P 500 may be at an all-time high, but equal-weighted it peaked in March. Nvidia alone has contributed a third of the recent rise and the largest six tech stocks account for three-quarters, so the rally has been narrowly based.
Federal Reserve (Fed) chair Jerome Powell’s dovish stance at the end of 2023, as well as easing financial conditions despite four months of disappointingly high inflation, makes it difficult to cut rates. Inflation may at last be easing, but for voters it seems intractable.
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With the potential to hit an air pocket in the US in the second half of the year, where does that leave Eutrope, the UK and China? Download our full European Macro Update for August 2024 to learn more.