The American Federal Reserve’s decision not to set new records on the stock market has led investors to shift their focus towards alternative sources. Despite high expectations for interest rate cuts, the Fed Chair’s rejection of further rate cuts and inflation exceeding expectations have caused interest rates on government bonds to rise, impacting debt servicing and the housing market. However, the moderate reaction to this disappointment has seen the S&P 500 still up over 5% since the beginning of the year.
The strong performance of American companies and hype around artificial intelligence have been supporting factors. However, there is a shift in focus towards expecting real profits from these companies rather than just speculation. The “Magnificent Seven” tech companies, responsible for recent market highs, are facing pressure to deliver on their AI plans and show real profits. While Meta has shown positive results, uncertainty remains around high expectations. Investors are closely watching the Fed’s next interest rate decision and the performance of other tech giants like Alphabet and Microsoft.
The American consumer is a key factor driving the economy but concerns about consumer spending slowing down and its impact on inflation persist. The savings rate in the USA is low, indicating that consumers are using up their savings quickly. This could lead to a slowdown in consumption and inflationary pressure in the future.
Overall, investors are navigating uncertain waters with a focus on real profits and economic fundamentals rather than speculation. While there are concerns about consumer spending slowing down, investors are adjusting to a new economic narrative with a broader foundation supporting the S&P 500.