Crypto broker FTX’s bankruptcy does not pose a systemic threat to markets. It did reveal something deeply unflattering about excess liquidity, however, and suggests that other private investments may come a cropper.
The latest CPI and PPI releases, the modestly less hawkish turn in Fed officials’ comments and evidence that consumers continue to spend with some relish support our constructive near-term views on equities and the economy.
Financial markets slumped with the tough talk that followed last week’s FOMC meeting, but investors should recognize that the tone of the Fed’s communications is conditioned upon the inflation backdrop. Once it improves, Chair Powell and his colleagues will be able to relax their rhetoric.
We remain constructive on the economy and equities in the near term because consumers show no sign of hunkering down, US homeowners are largely impervious to higher mortgage rates and our latest survey of storefront occupancies on Lower Fifth Avenue highlighted some encouraging developments.
On their third quarter earnings calls, the largest banks indicated that their household and business customers remain in surprisingly robust shape. We interpret their observations as supporting our constructive near-term take on the economy and financial markets.
The September CPI report was disappointing, but we still see several signs pointing to a rapid decline in inflation. Our constructive near-term view on stocks and the economy remains intact.
Long-after-the-fact revisions to reported income, spending and savings data do not alter our assessment that a flush consumer will continue to support the US economy and allow S&P 500 earnings to surprise the bearish investor consensus.
We share our thoughts about some of the less-discussed topics that came up across three weeks of face-to-face discussions with investors. We retain our conviction that the American consumer’s demise has been greatly exaggerated, and it continues to underpin our constructive near-term view on the US economy.
