Two positive economic data, US stocks welcome a "strong tailwind"!

US consumer confidence continued to rise in late September due to optimism about the economic outlook, reaching its highest level in five months, partly due to the positive impact of the Fed's rate cut.

The final value of the University of Michigan's confidence index for September rose to 70.1, higher than the preliminary value of 69 announced earlier this month. The latest data released last Friday showed that the index for August was 67.9.

Consumers expect prices to rise at an annual rate of 2.7% in the next year, the lowest level since the end of 2020, lower than the previous month's expectation of 2.8%. They believe that inflation will rise by 3.1% in the next five to ten years.

The improvement in confidence is related to the Fed's decision on September 18 to cut interest rates by 50 basis points, aimed at preventing deterioration in the labor market. Further lowering borrowing costs helps support consumers' views on the economy and their personal financial situation.

Earlier this week, government data showed a slight increase in household spending in August.

Although early expectations showed some concerns about the labor market, consumers' views on unemployment improved in the following weeks, according to the University of Michigan's report. This to some extent reflects the Fed's rate cut decision.

About 55% of respondents expect borrowing costs to decrease in the next year, the largest proportion on record. This has led to improved perceptions of purchasing big-ticket items and homes, the most optimistic since April.

"As consumers' expectations for the economy become brighter, confidence seems to be gaining some momentum," said survey director Joanne Hsu in a statement. "At the same time, many consumers continue to report that their expectations depend on the upcoming election results."

Consumer confidence among Democrats in September reached its highest level in five months, while confidence among Republicans and independent voters also slightly increased.

The University of Michigan's index rose to a three-month high of 63.3, while the expectations index reached its highest level since April.

Consumers' outlook on their financial situation reached a four-month high in September. Their view of the economy in the next year is the most optimistic since March.

Furthermore, earlier the Fed's favored Personal Consumption Expenditures (PCE) price index showed a cooling of inflation. According to Chris Zaccarelli, Chief Investment Officer at Independent Advisor Alliance, based on Friday's PCE data, inflation in the US appears to be easing, which is a positive development for the market.

The PCE report showed a slight 0.1% increase in US inflation in August, with the year-on-year rate slowing from 2.5% in July to 2.2%.

Zaccarelli said in an email comment on Friday, "As long as inflation remains within a manageable range - which is currently the trend - the Fed can almost entirely focus on the labor market, meaning a bias towards rate cuts. With the Fed cutting rates - especially in the absence of recessionary growth - this will be a strong tailwind for the stock and bond markets, ultimately providing some relief for consumers more sensitive to interest rates ”