Economy Propped Up By Three 'A-Pillars,' Says EY's Daco

EY's Chief Economist Greg Daco believes that the US economy is currently being propped up by three narrow, interconnected ‘A-pillars’: affluent consumers, artificial intelligence-fueled investment and asset price gains. New equity wealth has boosted consumer spending, which accounts for about two-thirds of demand in the economy – but also skewed it toward the rich. This comes as US consumer sentiment fell in November to one of the lowest levels on record as Americans’ views of their personal finances soure, with consumers becoming increasingly anxious about the high cost of living and job security. Daco joined Carol Massar and Tim Stenovec on 'Bloomberg Businessweek Daily' to discuss the weight of the three 'A-Pillars' and dwindling consumer sentiment.

Wall Street wrapped up a chaotic week with a turnaround in stocks after a selloff that whipsawed some of the most-speculative corners of the market, testing investors’ nerves after a torrid rally.

About 450 shares in the S&P 500 rose, with the gauge up 1%. Nvidia Corp. pared most of a plunge that earlier topped 4%. Bloomberg News reported US officials are having early talks on whether to let the firm sell its H200 artificial intelligence chips to China. The market also got an injection of hope as a Federal Reserve official suggested a rate cut remains a possibility.

his week saw a resurgence in volatility as assets favored by retail momentum traders like crypto and AI winners saw wild swings. The lack of clarity on whether the Fed will be able to cut rates has also jolted markets. Bitcoin bounced from its lows, but was still set for its worst month since 2022.

“The broader narrative hasn’t broken,” said Mark Hackett at Nationwide. “Periods like this often act as a release valve rather than signaling a true trend reversal. Markets need recalibration and a reset in positioning — something investors may have forgotten after six months of relative calm.”

Bond yields fell as Fed Bank of New York President John Williams sees room to ease policy in the near term. While traders boosted bets on a December cut, officials remain split on whether to lower rates. The Bureau of Labor Statistics canceled its October consumer price index report, and will release the November one on Dec. 18.

Despite the rebound in stocks, the S&P 500 was still poised for its worst month since March. And that’s a rarity as November is historically a good period for equities. For some traders, the flip side is that the rout might set the market up for a year-end rally.

“It’s hard to call a bottom to the correction, but if the better bets on a December Fed cut come through, we will likely have a material rebound in December,” said Louis Navellier at Navellier & Associates.

The market also saw amplified swings Friday as over $3.1 trillion of notional options exposure were estimated to expire.

The yield on 10-year Treasuries fell two basis points to 4.06% The dollar wavered. Bitcoin trimmed losses to trade above $84,000.

Goldman Sachs Group Inc.’s Tony Pasquariello sees signs of “capitulation” in US stocks, and expects more selling before the equity market stabilizes.

“While lower prices would likely bring more supply from both the systematic and the discretionary trading communities and while the full hangover from the October party may not yet be washed out, my instinct is this week has seen a significant dose of risk transfer and some elements of capitulation,” Pasquariello wrote.

Battered traders looking for a reason to wade back into this week’s turbulent market got one from a Barclays Plc model with a solid track record.

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