China Could Prevent a U.S. Recession and Boost Markets

What China just did might have stopped a U.S. recession in its tracks! This could mean a soft landing for the economy and a big boost for markets by the end of the year. The People's Bank of China (their version of the U.S. Federal Reserve) plans to pump $140 billion into their financial system. Yep, that’s like sending out stimulus checks, cutting borrowing rates for everyone from small businesses to big companies, and even making bank loans cheaper for people. They’re also telling financial institutions to buy Chinese stocks. Basically, China is taking aggressive steps to stop their economy, property market, and stock market from falling. It's the most significant move since the pandemic, and Chinese stocks are shooting up.

Meanwhile, in the Middle East, Saudi Arabia is adjusting its oil targets. They’re no longer aiming for $100 a barrel, which means more oil production and lower prices for us. Lower oil prices often lead to lower gasoline prices, so don’t be surprised to see prices at the pump drop a bit.

Sector Performance

In the U.S., things are looking positive as well. Bank of America just reported the largest equity inflow since October 2022. Utilities are doing great, up 25% this year, thanks to the AI demand for electricity in data centers. Companies like Constellation Energy and Vistra Corporation are leading the way, both up over 50% in September alone.

Since the Federal Reserve started cutting rates on September 18th, investors are getting more interested in growth assets. This includes materials, which are up 23% this year, led by Freeport-McMoRan, a major copper miner that recently jumped 25%. Other sectors showing strong gains include industrials (led by Caterpillar), consumer discretionary (led by Tesla), and semiconductors (led by Intel and Micron). And don’t forget Bitcoin, which has outperformed the S&P 500 since the Fed’s rate cuts.

Economic Indicators

The S&P 500 is already up 20% this year, and these gains might continue as the Fed keeps cutting rates. How the economy performs will be key. For instance, the number of people filing for unemployment peaked in July and has been falling since. This means the job market is slowing down but not collapsing, which is good because jobs drive spending, and spending drives the U.S. economy.

Mortgage refinancing is also on the rise as mortgage rates hit a two-year low. Third-quarter GDP estimates are hovering around 3%, which means the economy is far from a recession. The U.S. money supply is growing, which typically suggests more economic activity and stronger markets.

NO recession in sight

A typical recession involves tightening policies, reduced liquidity, and falling markets. But that’s not what we’re seeing now. Markets are surging because economic growth is stabilizing. With policies already easing and liquidity rising, we can expect markets to continue to grow as we move forward. And now, with China adding massive stimulus and the Fed cutting rates, the two largest economies are pumping more money into the system. This pretty much puts a safety net under everything, giving us optimism for the rest of the year.

So, as we head into the final months of the year, it looks like the global economic landscape is set for a positive shift. Keep an eye on the markets—they just might bring a Santa Claus rally after all!