That comes after stocks and consumer sentiment tumbled in 2022 as sticky inflation and the Federal Reserve's aggressive pace of interest rate hikes spurred fears that the US economy would tip into a recession.
"Consumer sentiment reached levels consistent with the lows of some past recessions last summer," wrote Lori Calvasina, head of US equity strategy at RBC Capital Markets. "Both consumer sentiment and stocks have been in the midst of a recovery off recession-like conditions this year."
The tightened correlation between stocks and consumer sentiment suggests that investors believe that the worst-case economic scenarios that seemed possible last year won't pan out, says Ed Moya, senior market analyst at OANDA.
That's in large part thanks to a slew of economic data in recent weeks that's pointed to a cooling but still strong US economy:
▸ The labor market added just 209,000 jobs in June, its lowest monthly gain since a decline in December 2020.
▸ US annual inflation slowed to 3%, compared to 9.1% in the same month the year before, strengthening hopes that the Fed's 2% target is in reach.
▸ While retail sales rose in June at a slower pace than expected, the data notched its third straight month of gains in another sign of a resilient consumer.
▸ JPMorgan Chase, BlackRock, Wells Fargo and Citigroup beat second-quarter earnings expectations, brightening the picture for a potential soft landing.
"Some of the worst fears are off the table as far as stagflation, as far as the Fed taking rates to 6% or higher," said Moya.
Still, consumer sentiment could decline if more people lose their jobs, paychecks and spending power. The possibility of a recession also remains on the horizon, though recent economic data has been encouraging.
"Things are positive right now, but it really takes one thing to trigger" volatility in the market, said Jon Ekoniak, partner at Bordeaux Wealth Advisors.
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