Economic Update: Tricky period or just a Sahm?

We’ve entered a challenging period for markets. On August 1st, key economic indicators in the US showed weakness in employment statistics (possibly due to Hurricane Beryl), softness in manufacturing surveys, and a surprise contraction in construction spending. As a result, investors are pricing in a weaker growth outlook, with concerns that the Fed may have delayed its easing cycle too long. There has been a softening in growth outlook for several months, and history suggests that moderate slowdowns can lead to hard landings. The key question now is whether this time will follow the same pattern.

Despite the current challenges, we remain positive on equities over the next 12-18 months. However, investors will need to navigate further softness in growth indicators without immediate central bank rate cuts. While the Bank of England has begun its easing cycle, its impact is modest compared to the Fed’s potential actions. Our positive long-term outlook is supported by several resilience factors: stronger household and corporate balance sheets, positive fiscal impulses, and supportive migration trends, particularly in the US and Australia. This tricky period, which may last a few months, presents an opportunity to buy the dip.

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