The US economy perked up a bit in the second quarter despite interest rate hikes and still high inflation. This growth can be attributed in part to consumer spending. Consumer spending, which accounts for about two-thirds of economic output, grew at just a 1.6% rate in the second quarter, down sharply from a 4.2% rate in the first three months of the year. The rate decline from the first quarter was due largely to a sharp pullback in spending on durable goods, such as cars and appliances. 

According to Shannon Seery, an economist at Wells Fargo’s Corporate and Investment Bank, consumers have “shifted their spending patterns in terms of their actual consumption." This was reflected in consumers cutting back on durable goods purchases in the second quarter. Consumer spending and the health of the labor market typically have a parallel relationship. If one goes up, the other goes up and vice versa. If employers continue to provide jobs, and wages continue to grow as inflation slows, then consumers will still have healthy purchasing power. Whether the Fed can successfully defeat inflation without seeing a decline in the labor market remains to be seen, but so far, both spending and hiring have lessened slightly and gradually.

What does this mean for the stock market? Optimism that the economy will land softly has rallied the stock market recently and sent prices soaring. In July, the DOW posted 13 straight days of gains, The S&P 500 reported a 3.1% gain and closed out July just 200 points below its all time high. Finally, the NasDaq Index jumped 4% and  its 37% gains from January -July 2023, marked its best since 1975. 

The stock market is entering the second half of 2023 with positive momentum, which historically bodes well for returns for the rest of the year. Technology stocks and growth stocks have outperformed in 2023, and investors are increasingly optimistic the Fed can navigate a soft landing for the U.S. economy.While the risk of a recession remains elevated due to inflation and high interest rates, most analysts are generally optimistic about the outlook for stocks in the second half of the year. 

Tickers to consider:  MARK , ASST , RNAZ ,  & IKT

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