Going Strong

Mike Zaccardi

RECESSION FEARS are fading. Second-quarter corporate profits have been better than expected. Some recent economic data show key barometers in growth mode, even as the latest GDP report confirmed a second consecutive quarter of economic contraction. Indeed, this past Friday’s hot employment report cooled the debate over whether we’re in a recession.

The pandemic upended so many facets of life and business, and we’re still feeling the effects today, as evidenced by odd swings in what are often stable economic numbers. For instance, business inventories and net exports are key components of GDP, and both contributed to the first half’s “technical” recession. Sharply lower government spending also hurt year-over-year growth during the first and second quarter.

But things look much better through the rest of the year. Even with the continued strong labor market, inflation is likely to simmer down. Gasoline prices have slipped every day since mid-June, which is when the stock market also bottomed. The UN’s Food and Agriculture Organization reported last Friday that its food price index fell for a fourth straight month. We’ll get the official word on last month’s inflation in Wednesday’s CPI report. Analysts expect a 0.2% monthly rise, driven by wage gains and still-climbing home prices.

Economists are more jittery about growth in 2023. Bank of America expects a sluggish economy next year, while Goldman Sachs is closer to the consensus estimate, predicting a below-trend GDP growth rate.

Amid all this confusion and noise, stocks continue to stage a recovery that’s going on two months now. Market pundits go back and forth on whether June 17 was “the bottom” or just “a low” for the S&P 500. The 14% rebound since then comes as company earnings continue to grow—and that growth has helped share price valuations remain reasonable.

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