The latest data indicates that the US economy is expected to continue growing at a robust pace before the end of this year, which may not be good news for investors who are hoping for the Federal Reserve to continue lowering interest rates rapidly...
New data released on Thursday shows that the US economy is expected to continue growing at a steady pace before the end of 2024.
The S&P Global US Composite PMI, which measures activity in the services and manufacturing sectors, stood at 54.4 in September, down from 54.6 in August, with the market expecting the index to drop to 54.3.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, stated that the data shows the US economy is still growing steadily as it enters the fourth quarter.
Williamson said in a press release, "In October, US business activity continued to grow at an encouragingly solid pace, extending the economic recovery seen so far this year into the fourth quarter. The October PMI flash estimate is consistent with GDP growth at an annualized rate of 2.5%."
Williamson added that sales were stimulated by "competitive pricing," leading to the lowest rate of goods and services sales price inflation since May 2020. These weaker price pressures align with the Federal Reserve's 2% target.
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This optimistic outlook aligns with market participants' current strong forecasts for US Q3 GDP data. Following the release of a strong employment report in September and better-than-expected retail sales data, Goldman Sachs' economic team currently expects the US economy to grow at an annualized rate of 3.1% in the third quarter.
Meanwhile, the Atlanta Fed's GDPNow model estimates the US economy to grow at an annualized rate of 3.4% in the third quarter.
The higher-than-expected growth forecasts helped to quell recession concerns that emerged in early August. At that time, the unemployment rate unexpectedly rose to 4.3%, triggering the "Sam Rule."
Matthew Martin, Senior US Economist at Oxford Economics, wrote in a report to clients on Thursday, "Our recession probability model showed significant improvement in September, reversing much of the recent upward trend. In this context, our confidence in our GDP growth forecast for 2025 being above the market consensus has strengthened."Overall, the economic growth data from the past month has not affected the market's judgment on the Federal Reserve's actions in November. According to the CME Group's FedWatch Tool, traders currently estimate a 95% probability that the Federal Reserve will lower interest rates by 25 basis points at its next meeting.
However, the market has already begun to anticipate a reduction in the number of Federal Reserve rate cuts over the next year, which aligns with the rise in the yield on the 10-year U.S. Treasury note. This yield has increased by approximately 50 basis points over the past month and is currently hovering around 4.2%. In some cases, a rise in U.S. Treasury yields could act as a headwind for the stock market. But equity strategists believe that if the rise in U.S. Treasury yields is accompanied by strong economic growth, it could be a positive signal for the stock market.
Gargi Chaudhuri, Chief Investment Officer and Head of Portfolio Strategy for BlackRock in the United States, stated, "A gradual rise in U.S. Treasury yields... for legitimate reasons, namely expectations of higher growth, has historically been beneficial for companies with earnings growth. Therefore, maintaining a high-quality core in one's investment portfolio remains very important."