Is the U.S. Entering a Recession? Depends on the Week

It was only a week ago that recession fears seemed to be dictating how markets moved. 

Since then, investors have adopted as short of a memory as the financial press. Despite a bumpy start to August, all three major stock indexes are now green on the month as of Thursday. 

Remember, the weaker July jobs report and the enormous unwinding of the Japanese carry trade spooked traders around the world, ignited historic volatility, and revived recession fears so much that some pundits called on the Fed to initiate an emergency rate cut.

The economy looked so weak, the thinking went, that policymakers should step in and do something they’ve only done a handful of times in the past 50 years. 

That’s all old news now. 

This week has ushered in a slate of upbeat economic data that pointed to cooling inflation, healthy consumers, and a humming labor market. Taken together, they paint a rosy picture, especially compared with the other week. 

In particular, analysts took the strong retail sales report as a sign that the Fed may not be behind the curve on rate cuts after all. Forecasts saw the print coming in at 0.4 percent, but it surprised at 1 percent. Americans, as it happens, have not been shy about spending. 

One week ago, markets thought it was a coin toss on whether the central bank would make a 50-basis-point rate cut in September versus a regular quarter-point cut. 

As of Thursday evening, odds for a jumbo-size cut have fallen to 23 percent. A normal pace of rate cuts looks likely once again. 

To be sure, strategists at Yardeni Research have remained optimistic all year, even in the face of bleaker economic data, such as what we saw at the start of the month. Thursday’s numbers reinforced their stance that the economy looks in good shape. 

“The latest data support our view that betting against consumers when jobs are expanding is a bad bet,” the Yardeni Research team told clients. 

They added that some of the recent tepid guidance from consumer-related companies on earnings calls has been overly cautious. 

Walmart’s CEO Doug McMillon seems to be in the same camp. His optimism helped Walmart stock climb 6.5 percent following a banner quarterly earnings report on Thursday.

“So far, we aren’t experiencing a weaker consumer overall,” McMillon said in a statement. “Each part of our business is growing.”  

All of the above invites the same question that’s been top of mind all year: How strong is the economy? Apparently, the answer depends on the week.