The US economy has demonstrated remarkable resilience amid challenges like inflation and a cooling labour market. Second quarter was revised upward from an annualised rate of 3% to 3.8%, showing a more robust economic expansion than initially estimated. This has been primarily due to increased consumer spending, which is surprising given the weak growth in employment in the quarter. US have grown at the fastest pace in four years, defying predictions that the US trade war would trigger a slowdown across corporate America.
Tech. bank companies lead Sept earnings
Mega tech companies such as Microsoft and Alphabet posted results that topped analysts’ estimates. The tech giants are estimated to spend over $ 1trillion on AI infrastructure by 2028, building data centres, supercomputers, and advanced chips to power generative AI and autonomous systems.
U.S. banks like JP Morgan, Goldman Sachs and Citi have also posted bumper profits, helped by a revival in deal-making and strong trading income. According to analysts across major investment banks, this frequency of earnings surprises was surpassed only during the COVID-19 reopening period in 2020-21.
Consumer stocks on back foot
However, consumer-facing companies have been clear laggards this earning season, putting pricing and margin pressure on companies in the staples and consumer discretionary sectors. This suggests that many Americans may be struggling. The University of Michigan’s preliminary results from its survey of consumers in November showed a drop in consumer sentiment, with the index reaching its lowest level in three years. As per a Forbes report, private employers struggled to add jobs, with over 11,000 jobs lost per week by late October.
A major impact of the recent and prolonged US government shutdown (which became the longest in US history at 43 days) was the suspension of official, high-impact government economic data releases. Following the government reopening, the relevant agencies will release delayed reports in rapid succession. This will give us a true picture of critical data points such as job creation, consumer prices and retail sales.
In summary, the US economy is expanding with solid GDP growth, but it is still navigating challenges like stubbornly elevated inflation and slowing momentum in the labour market. The combination of tariffs and looser monetary policy can cause inflation to accelerate. Also, by many historical measures (like price-to-earnings ratio and price-to-sales ratio), the US market is trading at a premium, with the market rally being heavily concentrated in a small group of mega-cap technology and AI-related stocks, which are arguably at elevated valuations. Going forward, investors should maintain a cautiously optimistic approach to investing, with a diversified exposure across asset classes, geographies, and sectors.
(Nikhil Advani is the Managing Director of International Business at LGT Wealth India)
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.