US economy is resilient but are markets losing confidence?

investmentnews.com:

After staving off recession for longer than many thought possible, the US consumer is finally about to crack, according to Bloomberg’s latest Markets Live Pulse survey. 

More than half of 526 respondents said that personal consumption — the most important driver of economic growth — will shrink in early 2024, which would be the first quarterly decline since the onset of the pandemic. Another 21% said the reversal will happen even sooner, in the last quarter of this year, as high borrowing costs eat into household budgets while Covid-era savings run down. 

The finding is at odds with the optimism that’s permeated US equity markets for most of the summer, as cooling inflation and low unemployment bolstered hopes for a so-called soft landing. Should the economy stop growing — a scenario that’s quite likely if consumer spending contracts — it could mean more downside for stocks, which have already slipped from late-July highs. 

“The likelihood of a soft landing, falling inflation, an end to Fed tightening, a peak in interest rates, a stable dollar, stable oil prices — all those things helped drive the market up,” says Alec Young, chief investment strategist at MAPsignals. “If the market loses confidence in that scenario, then stocks are vulnerable.”

Right now, the US economy appears to be speeding up rather than stalling. Growth is forecast to accelerate in the third quarter on the back of a recent pickup in household spending, which jumped in July by the most in six months. 

To some analysts, it looks a bit like a last hurrah.

“The big question is: Is this strength in consumption sustainable?” says Anna Wong, Bloomberg Economics’ chief US economist, who expects a recession to start by year-end. “It is not sustainable,