The US markets experienced a sharp drop in April due to faltering tech stocks, fears about the Federal Reserve keeping interest rates high, and geopolitical conflicts. Despite the market gloom, the economy has been resilient for the past few years, with stocks near all-time highs and a strong earnings season. Boston Consulting Group’s global chief economist, Philipp Carlsson-Szlezak, believes that the fears of a recession are exaggerated and that the Fed’s wait-and-see approach is a vote of confidence in the economy.
Carlsson-Szlezak points out that the vanishing expectations for rate cuts and extreme inflation prints are indicators of the underlying strength of the economy. He believes that the market volatility is a confirmation that rate cuts are not coming as fast as expected, which is a positive sign for the strong economy. Despite high valuations, institutional investors are not panicking, suggesting that the market outlook remains stable despite recent fluctuations.
Geopolitical worries, such as the war in Europe and rising tensions in the Middle East, have not directly impacted the real economy. While these events have the potential to cause disruptions, they have not resulted in a recession in major Western economies. The high bar for geopolitics to impact the macroeconomy indicates the resilience of the global economy to external shocks.
Investors are advised not to focus too much on monthly economic data, as short-term predictability is poor in economics. Despite occasional fears of economic downturns, markets continue to perform well, suggesting that investors are not overly concerned about short-term fluctuations. While a cyclical recession cannot be staved off forever, the likelihood of a recession in 2024 is low, barring significant shocks.
Looking ahead to the second half of 2024, Carlsson-Szlezak predicts a possible rate cut or two, as the labor market shows signs of cooling. Consumer spending is expected to remain robust, driven by a diversified consumption economy that includes both goods and services. While there may be fluctuations in the economy, overall aggregates indicate strong numbers. Despite potential risks, the economy is expected to continue performing well in the coming months.
In other news, a potential US ban against TikTok took a step towards becoming reality as House lawmakers approved a bill targeting the app. Tesla has been ordered to recall nearly 4,000 Cybertrucks due to a sticking accelerator pedal, caused by an unapproved change introducing lubricant during assembly. The recall affects all Model Year 2024 Cybertruck vehicles manufactured between November 13, 2023, and April 4, 2024, and owners will need to bring their vehicles to service centers for repair at no charge.
