Despite recession fears and a banking crisis, US markets have proved strong year-to-date with the Nasdaq Composite having rallied 33% and the S&P 500 up 16.5% at the time of writing.

Wall Street was buoyed by the latest US Core Personal Consumption Expenditures data on 30 June, which is the Federal Reserve’s preferred gauge of inflation because it strips out volatile energy and food products.

The data showed inflation creeping lower to 4.6% year-on-year from April’s 4.7% reading and was below the 4.7% rate the market was forecasting.

Investors reacted positively on hopes the Fed may be able to back off its inflation battle more quickly than chairman Jerome Powell has previously suggested.

Markets then consolidated gains on 3 July following the release of June’s ISM Manufacturing Purchasing Managers’ Index, with the reading dropping from 46.9 in May to 46 in June. This was worse than the 47.2 reading the market was looking for and signalled that economic activity in the US manufacturing sector continued to contract last month, but it also implies that the Fed’s aggressive tightening to tame inflation is working.

On 7 July, all eyes will be on the US non-farm payrolls, which will give investors a snapshot of how the economy is coping following 500 basis points of interest rate hikes from the US central bank since last year.

Evidence of continued solid jobs growth could reinforce a view that has helped boost markets in 2023 to date, that the Fed can successfully pilot the world’s biggest economy away from recession and towards a ‘soft landing’. Though the Fed held rates steady in June, it has indicated more increases are coming this year, including a widely expected hike in July.

Cruise companies remain one of the most popular trades among US stocks, with Norwegian Cruise Line (NCLH:NYSE) having rallied by 18% over the five trading days to 4 July and up 85% year-to-date amid a sharp recovery in demand for a holiday at sea.

Tesla (TSLA:NASDAQ) advanced by 16% over the five trading days to 4 July thanks to delivering a record number of cars in the three months to the end of June. It is reaping the benefits of cutting prices which has spurred more people to buy its electric vehicles.

Sector peer Rivian Automotive (RIVN:NASDAQ) fared even better, with its share price rising 45% over the same five days after reporting that 13,992 trucks and vans were built in the second quarter, far exceeding market estimates of approximately 11,000 vehicles.

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