US: Three reasons why a growth scare is overblown – Morgan Stanley

Despite talk of a “growth scare,” the US economy and markets may be poised for steadier gains ahead. Lisa Shalett, Chief Investment Officer, Wealth Management at Morgan Stanley explains why investors should not worry about slowing growth.

Economic growth is slowing but remains solid 

“Recently, preliminary estimates for second-quarter gross domestic product (GDP) growth came in at 6.5%. We forecast third-quarter annualized GDP growth at 6.1%, expecting that supply-chain pressures will continue to resolve and fiscal spending prospects will turn up. Strong fundamentals also underpin this forecast: Recent data updates saw US manufacturing activity grow, housing prices rebound and durable goods orders advance.”

Second-quarter corporate earnings have been excellent so far

“As of July 30, with 59% of S&P 500 companies having reported results, 88% of them have reported earnings that came in above analysts’ expectations, and 88% have reported a positive revenue surprise. Looking ahead, analysts are projecting double-digit earnings growth for the remaining two quarters of 2021.”

The consumer remains strong 

“US consumer confidence as measured by the Conference Board Consumer Confidence Index inched up slightly in July, to 129.1, the highest since February 2020. Stable confidence and rising wages, together with growing household wealth and ample savings, should keep consumer spending strong.”