Michelle ThompsonInvestors seemed rejuvenated after the weekend, returning on Monday with renewed optimism about the U.S. economy. The Dow surged 484 points, or 1.2%, with the S&P 500 and Nasdaq also climbing by 1.2% each. At one point, the Dow had gained over 600 points.
This positive shift contrasts sharply with the previous week’s mood, when investors were cautious leading up to a jobs report that Wall Street anticipated would be underwhelming. On Friday, the report confirmed expectations: while the labor market is expanding, the growth rate is slower than in previous years.
Despite lingering fears on Wall Street, CNN Business’ Fear and Greed Index ticked towards “neutral” sentiment on Monday. Investors are now looking forward to U.S. inflation data, starting with the Consumer Price Index report on Wednesday. This report is expected to indicate a significant slowdown in inflation for August, suggesting that the Federal Reserve’s efforts to combat inflation are succeeding.
The Fed’s strategy of maintaining high interest rates aims to control price increases but has the side effect of slowing economic growth. Higher rates increase business costs, reduce profitability, and can lead to slower hiring and reduced consumer spending. While this typically triggers a recession, the U.S. has managed to avoid one despite several years of elevated rates, which is notable.
The ongoing strength in job growth and consumer spending, partly due to lingering effects of pandemic-era stimulus and favorable mortgage rates, may explain Monday’s market rebound. Investors might be reacting to the notion that the recent market decline could have been overblown.
Overall, the current economic performance, with job growth continuing at a healthy pace, aligns with the “soft landing” scenario many hoped for when the Fed began raising rates years ago. While it’s too soon to declare a complete success, the current situation appears to be a favorable outcome compared to previous forecasts.
