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Earlier this week, the latest consumer price index showed that annual headline inflation in the world’s largest economy rose by less than expected in July. On a monthly basis, the reading was unchanged from 0.2% in June. Meanwhile, U.S. job growth slowed last month, although solid wage gains and a slight dip in the unemployment rate suggested that there is lingering tightness in the labor market.
In a note to clients, the analysts argued that the numbers “remain supportive” of a so-called “soft landing,” in which rising interest rates cause inflation to cool but do not cause a severe economic downturn.
This scenario “has arguably become consensus and looks much priced in now after the late broadening in market leadership, pick-up in equity inflows and collapse in volatility,” according to the analysts.
They also described trading in August as “choppy […] with technicals/positioning no more a tailwind for stocks, and some soft landing fatigue.”
But the analysts added that they believe equities will still continue to “grind higher” absent any “negative growth/positive inflation surprises.”
“Big picture, although we see room for further moderate gains into year end, the path ahead is not straightforward,” they said.
