The month of July will be remembered for the surprisingly hot summer weather and the even more surprising success of the England football team during the World Cup. It was also an interesting time in the markets, with the S&P 500 having its strongest month since January and Facebook falling by 20% on one day after poor future earnings forecasts.
Although doubts remain about the health of the European and Chinese economies, there has been growing confidence in the durability of the US’s current economic cycle. This confidence was rewarded on 27 July when the US second quarter GDP number was released. The data showed that the US grew at a very strong rate of 4.1% on an annualised basis. Q1 growth was also revised up to 2.2% from 2.0% meaning the average growth rate for the first half of the year was a robust 3.2%. The number illustrates that the tax cuts in December are continuing to boost the economy and
confirms that if you borrow enough money from your grandchildren and throw it at the economy, it will grow faster, for a while. The question now, however, is for how long this stellar growth can continue and what effects the inevitable slowdown will have on markets. But for now the US is on course for its longest expansion in history.