"The temporary U.S. government shutdown has delayed the release of some key economic data, yet the figures already published, such as ISM and consumer confidence, reflect a moderation in demand that remains strong enough to sustain growth. In this environment, the Federal Reserve (Fed) has reason to maintain a dovish tone, avoiding an unnecessary tightening of financial conditions while the economy remains in a delicate balance."
"In terms of corporate earnings, the recovery cycle is gradually taking shape with improving quality. Revenue growth may slow, but profit margins are being supported by lower input costs, stable wages, and particularly by productivity gains driven by heavy investment in artificial intelligence (AI) and cloud computing. Large corporations have demonstrated greater financial discipline following the 2022-2023 adjustment period, focusing on cost optimization rather than aggressive expansion."
"The interest rate landscape is also shifting from "higher for longer" toward "stable with a bias to ease." The 10-year Treasury yield appears to have formed a short-term top, while the weaker U.S. dollar has improved the translated profits of multinational companies and loosened overall financial conditions. Credit markets remain well-functioning, and yield spreads are at healthy levels, indicating low systemic risk."
The U.S. economy appears on track for a soft landing as growth cools without contracting and inflation eases toward the Fed's 2% goal. A brief government shutdown delayed some data releases, but ISM and consumer confidence indicate moderated yet sufficient demand. The Fed can maintain a dovish tone to avoid tightening financial conditions while the economy balances. Corporate earnings recovery shows improving quality: revenue growth may slow, but margins benefit from lower input costs, stable wages, and productivity gains from heavy AI and cloud investment. Financial discipline among large firms and healthier credit markets support upside to EPS and equity valuations.
Read at London Business News | Londonlovesbusiness.com
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