The outlook for the global economy and stock markets has been improving recently.

After the United States released an impressive 3% annual inflation reading, Canada delivered a 2.8% annual inflation estimate for June. Both numbers clearly show that leading North American economies are getting out of the woods as far as inflation is concerned.

Canadian stocks have been on the rise across the board since then.

But it wasn’t the only batch of positive news releases. In the United States, the main catalyst for the stock market came from the banking sector. Earlier this year, it became the center of attention after several high-profile crises and bankruptcies.

However, the most recent earnings season showed that most banks in the United States are in good shape. This raises investors’ confidence in the banking industry and the economic recovery.

These were some of the most notable results:

  1. Morgan Stanley beat the earning forecast by 19.5%. The stock gained 6.45% in a day.
  2. Bank of America delivered a 4.86% surprise on its earnings. The share price went up 4.42%.
  3. Charles Schwab also eclipsed the market’s expectations. It was the best-performing stock within the S&P 500 Index, with a 12.57% gain in its share price.
  4. Bank of New York Mellon and PNC Financial followed the same pattern. The banks gained 4.11% and 2.51%, respectively.

The entire sector has shown a sign of recovery. As a result, the KWB Bank Index gained 3.03% in a day.

So far this year, the banking sector still hasn’t recovered from its March collapse. However, it has been trending up since mid-June.

The banks’ latest earnings show that the sector is in decent shape and set for recovery. We believe it’s a clear sign that the banking crisis would not produce any long-term contagion in the financial system.

The markets seem to support this idea.

The U.S. Economy Is a Powerhouse

Other economic indicators have also been positive. The U.S. unemployment rate remains near its all-time low at 3.6%. Retail sales have gained 0.2%, a bit less than the 0.3% projected by analysts, but still positive.

These lead to the strongest University of Michigan consumer sentiment index reading since September 2021—a robust sign of improving economic conditions.

All these readings bode well for the markets. If we’re right about the potentially massive stimulus to be implemented in China, the global market rally will gather pace.

Don’t get us wrong, the global economy is still not in its best shape, and some metrics point to a recession. No one can tell for sure whether we’ve passed the economic downturn or are heading into it.

Yet we believe the latest macroeconomic data point to a healthy recovery. Even if the global economy technically dips into recession, it will likely be short-lived.

The megatrends we follow are set to thrive during this bull market. That’s why we maintain our bullish outlook for the most promising sectors, such as clean energy transition, automation, AI, and others.

Thank you for your loyal readership,

The Financial Star team