Global equity markets have started the month of November on a better note compared to the past few months. The U.S. Federal Reserve held interest rates steady in its policy update this past week. The general message has been consistent: they are trying to balance the risk of over-tightening financial conditions with the need to ensure policy is sufficiently restrictive for long enough to bring inflation sustainably under control.

 

Overall, corporate earnings results have been fine, particularly when compared to expectations. The better-than-expected U.S. earnings results come on the heels of better-than-expected U.S. economic data. The most recent U.S. GDP figures, which represent the most common measure of economic growth, grew at an annualized pace of nearly 5% for the July-through-September period. That was higher than expected and also represented the highest rate of quarterly growth since late 2021. The strength was driven by an ever-resilient consumer, which continues to surprise to the upside.

 

Despite positive headlines around the U.S. economy and corporate earnings results, the overall tone of the outlooks and commentary from management teams has been more conservative. Many businesses acknowledged that the U.S. economy, and the consumer in particular, have been stronger than expected. But many questioned whether, or more accurately, how long, the consumer resilience could be sustained.

 

Some potential cracks on the consumer front have started to emerge, with delinquencies trending higher in areas like credit cards and auto loans. Nevertheless, banks continue to characterize the latter increases as being a normalization of credit trends, rather than anything particularly troubling. The labour market remains healthy but management teams have slowed the pace of hiring.

 

The actions noted above may be music to the ears of central banks. After all, they raised rates aggressively and quickly over the past year or so in an effort to slow inflation pressures and cool economic activity. Businesses seem to increasingly be doing their part by adapting to the environment. However, U.S. consumers seem to be largely undeterred by higher rates and the higher cost of living to this point. Nevertheless, it may just be a matter of time before they too start to adjust their behavior in a bigger way by slowing their own spending plans, leading to weaker demand for goods and services.