"The data wave" points to the prospect of a soft landing, the bull market in US stocks is not over yet!

Last week, the best-case scenario for the US stock market received a second life. The sharp rise in US stocks last Thursday was driven by the latest economic data, injecting new vitality into Wall Street's rosy dreams of cooling inflation and stable economic growth.

Tim Hayes, Chief Global Investment Strategist at Ned Davis Research, stated in a report, "Extreme sentiment reflects excessive recession concerns. Today, pessimism is not only giving way to an exaggerated view of recession concerns in the market, but also shifting towards a more friendly expectation of the Fed (rate cuts), which is almost certain to follow other central banks in cutting rates next month."

Wall Street strategists found comfort in four recent data points, indicating that the US economy is poised for a soft landing.

Inflation Clearly on a Downward Trend

According to data from the Bureau of Labor Statistics, the Consumer Price Index in the previous month moved closer to the Fed's 2% target, rising 2.9% year-on-year in July. This number is lower than the economists' expected annual growth rate of 3% and also lower than the 3% annual growth rate recorded in June.

Charlie Ripley, Senior Investment Strategist at Allianz Investment Management, stated in a report last week, "Overall, although the trend of inflation deceleration has significantly slowed down, it is likely still within a comfortable range for the Fed to start a series of rate cuts."

Bill Adams, Chief Economist at Comerica Bank, said last week, "The Consumer Price Index report has given the green light for the Fed to cut rates at its next policy meeting." The bank expects the Fed to cut rates by 25 basis points at each of the next four meetings, totaling 150 basis points over the next 12 months.

Investors are anticipating a faster pace of policy easing. According to the CME Group's FedWatch tool, the market sees a 41% chance of the Fed cutting rates by 100 basis points by the end of this year.

Initial Jobless Claims Drop to Lowest Level in Five Weeks

According to the Department of Labor, initial jobless claims fell to 227,000 last week, below economists' expectations.

Adams from Comerica said, "The strong growth in July activity indicators suggests that the rise in the unemployment rate that month was not due to an economic slowdown. It is more likely a reflection of Hurricane Beryl's impact on the Texas job market, as well as an increase in immigrants and college graduates entering the job market."

Ronald Temple, Chief Market Strategist at Lazard, added in a report, "Retail sales data and initial jobless claims provide more evidence that even as the economy slows from unsustainable strong growth levels, the risk of a recession in the US remains low."

Unexpected Growth in Consumer Spending

Retail sales in July saw the largest increase in over a year, with a growth of 1%, higher than the expected 0.3%.

Analysts at Bank of America stated in a report last week that these results are in line with the "soft landing economic outlook" and expect the Fed to cut interest rates by 25 basis points twice this year.

Jim Baird, Chief Investment Officer at Plante Moran Financial Advisors, added, "Retailers benefited from a mid-term boost in consumer spending in July, which is another strong indicator that the economy is still on an expansion track."

Lydia Boussour, Senior Economist at Ernst & Young, stated in a release, "Despite facing higher prices and borrowing costs, consumers are becoming more selective in their spending, but the latest retail sales data shows they are willing to continue consuming." She also mentioned that the company does not foresee a prospect of "consumer spending contraction."

Strengthened Confidence in Small Businesses

According to the latest survey by the National Federation of Independent Business, confidence among small businesses has risen to the highest level since February 2022, i.e., before the Fed's first rate hike.

The number of small business owners planning to replenish inventory in the coming months increased by 4 basis points in July, marking the first positive growth since October 2022.

The proportion of business owners expecting actual sales to increase also rose by 4 basis points, reaching the highest level so far this year.

John Caplan, CEO of financial company Payoneer, stated, "The National Federation of Independent Business's Small Business Optimism Index has reached its highest point in nearly two and a half years, coupled with new data last week showing a slowdown in inflation, indicating that recent sharp rise in recession concerns is unfounded."