Let’s look at what is happening in the market. Below, I also include analyst consensus forecasts for the ASX200 and S&P500.
Market overview
There has been general risk on sentiment recently. This is on the back of consistently ‘good’ inflation data (at least relative to expectations). Key CPI readings include
US: 3.2% y/y
UK: 4.6% y/y
EU: 2.9% y/y
AU: 4.9% y/y
The labor market remains relatively tight in most markets, however. This includes the unemployment rate falling to 3.7% in the US and hourly earnings increasing 4.0%y/y. Volatility remains in commodities. However, oil prices have remained soft, adding to hope that headline (and subsequently core) inflation will remain subdued.
The economic picture has increased confidence of a soft landing. The S&P500 and Nasdaq composite have increased more than 4% over the past month.
Headwinds remain, however. These include concerns surrounding stubborn services inflation, which could force central banks to keep rates higher for longer. There are also concerns about a bifurcation in the economy. Savers and those with minimal debt (or minimal debt needs) might be faring well. However, borrowers might not be. This has reportedly forced more job switching, second jobs, and increases in hours. It also means that in some markets, borrowers will face severe financial distress. Thus, how high rates remain and for how long will significantly influence the trajectory of the economy.