Happy Friday! Stocks are on track for a winning week.

It always amazes me how fast the vibe can shift in markets. A flurry of doom-and-gloom headlines can precede a chorus of optimism from economists and the media.

Today’s edition takes the temperature.

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Short-term memory in markets

It was only a week ago that recession fears seemed to be dictating how markets moved. 

Since then, investors have adopted as short of a memory as the financial press. Despite a bumpy start to August, all three major stock indexes are now green on the month as of Thursday. 

Remember, the weaker July jobs report and the enormous unwinding of the Japanese carry trade spooked traders around the world, ignited historic volatility, and revived recession fears so much that pundits called on the Fed to initiate an emergency rate cut.

The economy looked so weak, the thinking went, that policymakers should step in and do something they’ve only done a handful of times in the last 50 years. 

That’s all old news now. 

This week has ushered in a slate of upbeat economic data that pointed to cooling inflation, healthy consumers, and a humming labor market.

Taken together, they paint a rosy picture, especially compared to the other week. 

In particular, analysts took the strong retail sales report as a sign that the Fed may not be behind the curve on rate cuts after all. Forecasts saw the print coming in at 0.4%, but it surprised at 1.0%.

Americans, as it happens, have not been shy about spending. 

One week ago, markets thought it was a coin toss on whether the central bank would make a 50-basis-point rate cut in September versus a regular quarter-point cut. 

As of Thursday evening, odds for a jumbo-sized cut have fallen to 23%. A normal pace of rate cuts looks likely once again. 

To be sure, strategists at Yardeni Research have remained optimistic all year, even in the face of bleaker economic data like we saw at the start of the month.

Thursday’s numbers reinforced their stance that the economy looks in good shape. 

“The latest data support our view that betting against consumers when jobs are expanding is a bad bet,” the Yardeni Research team told clients. 

They added that some of the recent tepid guidance from consumer-related companies on earnings calls has been overly cautious. 

Walmart’s CEO Doug McMillon seems to be in the same camp. His optimism helped Walmart stock climb 6.5% following a banner quarterly earnings report on Thursday.

“So far, we aren’t experiencing a weaker consumer overall,” McMillon said in a statement. “Each part of our business is growing.”  

All of the above begs the same question that’s been top of mind all year: How strong is the economy?

Apparently, the answer depends on the week.

Comments or feedback? Hit reply to this email or let me know on X @philrosenn.

Elsewhere:

📈 Walmart crushed its earnings. The stock jumped after the discount retailer raised its full-year outlook and praised the strength of the consumer. Its executives see sales to rise by 3.75% to 4.75% for the full year, but the second half of the year may ultimately not be as strong as the first half. (CNBC)

🏘️ Falling mortgage rates can’t fix everything. Frustrated homebuyers won’t be appeased as rates get lower, as there are still plenty of headwinds preventing a true recovery in the housing market. The hope is that lower rates bring more home buyers back into the market, but that is not likely to happen quickly. (WSJ)

🤝 Seagram wants Paramount. The heir to Seagram, Edgar Bronfman Jr., intends to make an offer for Paramount Global, which will create a potential bidding war for the media conglomerate. The details are still being worked out, according to sources close to the matter. In July, Paramount had agreed to a merger with Skydance Media, the production company founded by David Ellison. (Bloomberg)

Rapid-fire:

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