The U.S. stock market has rebounded, data has improved, and the recession expectations have dissipated?

With the improvement in US economic data and the fading of "irrational recession panic", the US stock market has made an astonishing turnaround, sweeping away the gloom of the sharp decline in early August.

By the close of Thursday, the S&P 500 index had regained all lost ground from early August, rising by 0.4%. The tech-heavy NASDAQ index was only slightly lower than the previous month. Over the past six days, the S&P 500 has risen by 6.6%, the NASDAQ by 8.6%, marking the largest increase since November 2022.

According to FactSet data, the NASDAQ was only 1.3 percentage points away from exiting the pullback zone by the close on Thursday, while the S&P 500 was only 2.2 percentage points away from its historical high on July 16.

Encouraging economic data and strong financial reports have helped drive the US stock market to achieve a major turnaround. US retail sales in July saw the largest increase in a year and a half, while initial jobless claims were lower than economists' expectations. Strong earnings from Walmart triggered a broad rebound.

Wall Street analysts stated that the strong economic data this week has alleviated investors' concerns about an imminent US recession, and also reduced the likelihood of a 50 basis point rate cut by the Federal Reserve next month.

Goldman Sachs believes that the likelihood of the US economy continuing to expand is greater than a recession, and they believe that the Federal Reserve will take swift action to support the economy when necessary. The market is expected to continue to rebound after experiencing macro-driven selling, with growing concerns gradually diminishing. However, risks still exist.

Multiple Data Points Easing Recession Concerns

The data released overnight has significantly eased market concerns about an economic recession.

Data from the US Census Bureau shows that retail sales in July increased by 1% month-on-month, higher than Wall Street's expected 0.4%, reversing the slowdown trend in June and reaching a record high in a year and a half.

Car sales increased by 0.66% month-on-month, accounting for about two-thirds of the retail sales growth. On one hand, due to technical reasons, last month's cyberattack on car dealerships led to a sharp drop in sales in June, which was corrected this month. On the other hand, it also echoed the previous day's CPI report showing a decline in new and used car prices, indicating that the cooling of inflation stimulated Americans' consumption of durable goods, which is positive for the economy.

At the same time, the number of initial jobless claims last week fell more than expected. The latest data from the US Department of Labor shows that for the week ending August 10, the number of initial jobless claims was 227,000, lower than the previous week's 234,000 and also lower than economists' expected 235,000.

These two reports refute market concerns about a significant slowdown in the US economy. Earlier that day, the largest US retailer, Walmart, reported better-than-expected earnings and raised its profit forecast for the remainder of the year, citing the sustained strong purchasing power of consumers.

Strong economic data will continue to benefit the stock market, with economic "good news" becoming the market's "good news." However, some analysts also point out that too much "good news" may also bring risks.**Jones Trading's Chief Market Strategist Mike O'Rourke stated that based on yesterday's inflation data and today's data, if we get more strong data, then you will start to doubt whether we need a rate cut.

Has the "soft landing" been achieved? Is a 25 basis point rate cut more stable?

Yung-Yu Ma, Chief Investment Officer of BMO Wealth Management USA, said:

Suddenly everything became clear, the data seemed to present a "golden-haired girl" scenario, which is a stark contrast to the market sell-off situation a week ago. We believe that the soft landing has been firmly achieved.

Strong spending reports coupled with lower-than-expected jobless claims have also led investors to reduce calls for the Fed to actively ease policy.

As of Thursday morning, the market expects a 75% likelihood of a 25 basis point rate cut by the Fed. A week ago, due to concerns about an impending economic downturn, the market had been expecting a 50 basis point rate cut.

Tom Simons, an economist at Jefferies, wrote in a report to clients on Thursday that the Fed should soon begin normalizing policy through moderate, gradual rate cuts, but there are no signs indicating a need for significant easing