The US economy has demonstrated remarkable resilience, confounding recession fears and poised for continued growth through the end of 2024. Recent data from S&P Global's flash US composite PMI, which tracks activity in both the services and manufacturing sectors, has painted an encouraging picture of the economic landscape.

Powering Through Challenges, Fueling Optimism

Solid Expansion Amid Shifting Dynamics

The October flash PMI data revealed that business activity continued to grow at a solid pace, sustaining the economic upturn that has been recorded throughout the year. Despite a slight dip from August, the composite PMI reading of 54.4 in September exceeded economists' expectations, signaling that the US economy is chugging along into the fourth quarter.According to Chris Williamson, chief business economist at S&P Global Market Intelligence, the data suggests the US economy is on track to grow at an annualized rate of around 2.5%. This upbeat outlook aligns with the strong projections market participants currently have for the third quarter gross domestic product (GDP) print.

Taming Inflation, Boosting Confidence

Notably, the data also indicates that sales are being stimulated by "competitive pricing," leading to a decline in selling price inflation for goods and services to the lowest level since May 2020. Williamson noted that these weaker price pressures are consistent with inflation running below the Federal Reserve's 2% target, a development that could ease the central bank's policy tightening efforts.This positive trend has helped quell recession fears that percolated in early August, when the unemployment rate unexpectedly rose to 4.3%, triggering concerns about a potential economic downturn. Oxford Economics' senior US economist, Matthew Martin, reported that the firm's probability of recession models showed marked improvement in September, reversing much of the recent rise.

Navigating Uncertainties, Maintaining Optimism

Despite the overall upbeat outlook, the economic growth data has not significantly swayed markets on what the Federal Reserve will do in November. Traders are currently pricing in a 95% chance that the central bank will lower interest rates by 25 basis points at its next meeting, according to the CME FedWatch Tool.However, markets have moved to price in fewer Fed rate cuts over the next year, with one fewer cut expected than was priced in on October 4 and two fewer cuts than markets were projecting on September 18, the day the Fed slashed rates by half a percentage point.This shift in market expectations has coincided with an increase in the 10-year Treasury yield, which has added about 50 basis points over the past month to hover near 4.2%. While a push higher in yields can sometimes be a headwind for stocks, equity strategists have argued that if the increase in yields comes alongside solid economic growth, it will likely be a welcome sign for the markets.As Gargi Chaudhuri, BlackRock Americas' chief investment and portfolio strategist, noted, "A gradual move higher [in yields] … for the right reasons, with the expectation of higher growth, historically has tended to be good for those earnings growers." She emphasized the importance of maintaining a focus on quality in one's portfolio, as the economic landscape continues to evolve.