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Macroscope | The US economy is performing strongly, but has it hit the high-water mark?
Nicholas Spiro says the US economy has looked very strong as of late, especially compared to China and Europe, but may have peaked and might be headed for choppier conditions – thanks to the escalating trade war
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It took more than half a year, but by the start of this week, the benchmark S&P 500 equity index was within striking distance of its record closing high set on January 26, just days before an eruption of volatility sent US stock markets into a tailspin.
The swift recovery and strong performance of US equities has been one of the dominant themes in global markets this year.
It has been all the more remarkable given the plethora of risks confronting US stocks. These include an intensifying trade war between the United States and China, a more hawkish Federal Reserve, concerns about the sustainability of the rally in technology shares which has driven the market higher and, last but not least, the US midterm elections in November, which could help determine whether President Donald Trump is re-elected in 2020.
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What is more, it is not just US stocks that are performing strongly in the face of growing uncertainties.
In the second quarter of this year, America’s economy expanded at its fastest clip in nearly four years, buoyed by last year’s US$1.5 trillion tax cut, which has boosted consumption and investment. The Fed’s preferred measure of inflation, moreover, stands at just below 2 per cent, allowing the central bank to keep raising interest rates at a relatively measured pace.
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