Priced-In Hopes: Analysts Say Markets Expect Control of Inflation without Economic Collapse

Barclays analysts suggest that markets have largely priced in the optimism surrounding the US economy’s ability to control high inflation without causing a significant downturn. Recent data shows that annual headline inflation in the world‘s largest economy rose less than expected in July and remained unchanged from June in monthly terms. Despite slower job growth, strong wage increases and a slight decline in the unemployment rate indicate the persistence of a tight labor market. The analysts argue that these figures continue to support a “soft landing” scenario, where rising interest rates cool inflation but do not lead to a severe economic downturn. This scenario seems to have become a consensus and is well-accepted, as evident from the late extension of market leadership, the rebound in capital inflows, and the collapse of volatility. However, the analysts caution that August has been a hectic month with technical positioning no longer favoring stocks, and some fatigue from the soft landing. Nevertheless, they believe that equities will continue to rise as long as there are no negative growth or positive inflation surprises. Despite the potential for further moderate increases until the end of the year, the analysts acknowledge that the path forward may not be easy.