With the recovery of US economic data, the "irrational recession panic" has receded, and the US stock market has achieved an amazing turnaround, sweeping away the gloom of the big drop in early August.

As of Thursday's close, the S&P 500 index has regained all lost ground in early August, up 0.4%, and the Nasdaq index, primarily technology stocks, was only slightly lower than last month. In the past six days, the S&P 500 rose 6.6% and the Nasdaq rose 8.6%, the largest gain since November 2022.

According to FactSet's data, the Nasdaq was only 1.3 percentage points away from exiting the correction zone at Thursday's close, while the S&P 500 index was only 2.2 percentage points away from its historical high on July 16.

Encouraging economic data and strong earnings reports have helped US stocks achieve a major turnaround. In July, US retail sales recorded their largest increase in a year and a half, and the number of people applying for unemployment benefits was lower than economists had expected. In addition, Walmart's strong profits triggered a widespread rebound.

Wall Street analysts said that strong economic data this week eased investors' concerns about the imminent US recession, while also reducing the likelihood of a 50-basis-point rate cut by the Fed next month.

Goldman Sachs believes that the likelihood of continued expansion of the US economy is greater than that of a recession, and believes that the Fed will take swift action to support the economy when necessary. The market is expected to continue to rebound after the macro-driven sell-off, as growth concerns gradually diminish and the market has further room for relief, although risks still exist.

Multiple data points eased concerns about a recession

Data released overnight eased market concerns about an economic recession.

According to data released by the US Census Bureau, retail sales in July increased by 1% on a month-on-month basis, higher than Wall Street's expected 0.4%, reversing the slowdown in June and setting a new record high in a year and a half.

Auto sales rose 0.66% month on month, accounting for two-thirds of the increase in retail sales. On the one hand, due to technical reasons, the cyber attack on auto dealers last month led to a sharp decline in sales in June, which was corrected this month; on the other hand, it also echoed CPI's report on the previous day that the prices of new and used cars fell, indicating that the cooling of inflation stimulated Americans' consumption of durable goods, which is good news for the economy.

At the same time, the number of first-time unemployment claims last week fell more than expected. The latest data from the US Department of Labor showed that in the week ending August 10, the number of people who applied for initial unemployment benefits was 227,000, lower than the 234,000 people in the previous week and lower than the economists’ expected 235,000 people.

These two reports refuted the market's concerns about a significant slowdown in the US economy. Earlier that day, Walmart, the largest retailer in the US, released better-than-expected earnings reports and raised its profit forecast for the rest of the year, citing sustained strong consumer spending power.

Strong economic data will continue to benefit the stock market, and economic "good news" has become the market's "good news." However, some analysts have pointed out that too much "good news" may also bring risks. Mike O'Rourke, chief market strategist at Jones Trading, said that looking at yesterday's inflation data and today's data, if we get more strong data, then you will begin to wonder if we need a rate cut.

"Soft landing" has been achieved? A 25 basis point rate cut is more stable?

Yung-Yu Ma, Chief Investment Officer of BMO Wealth Management USA, said:

Suddenly everything became clear, and the data seemed to present a scenario of "blondes," which was very different from the situation when the market was selling off a week ago. We believe that a soft landing has been firmly achieved.

Strong spending reports, coupled with lower-than-expected initial jobless claims, have also reduced calls for the Fed to begin loosening policy.

As of Thursday morning, the market expected a 75% chance of a 25 basis point rate cut by the Fed. A week ago, due to concerns that the economy was about to decline, the market had expected the Fed to cut interest rates by 50 basis points.

Tom Simons, an economist at Jefferies Financial, wrote in a report to clients on Thursday that the Fed should soon begin normalizing policy in a moderate and gradual manner, but there is no indication that the economy needs significant easing.

Editor/Emily