Consumer confidence conundrum

The US economy is surprisingly strong, with consumer spending and manufacturing showing their best sustained growth in four years. Third-quarter GDP is tracking at a robust 5.1%, the fastest in nearly five years. This is supported by solid job growth and a significant wealth effect from rising stock and home prices.

Despite this strength, confidence has fallen. Investors are worried about a more aggressive Federal Reserve response to inflation, driving 10-year Treasury yields to 19-year highs. The conflict in Iran has also fueled energy price volatility, adding to investor unease.

We should watch for how elevated equity valuations and the upcoming midterm elections impact the stock market. The Fed's path on interest rates is uncertain, and higher rates and energy prices could eventually curb consumer spending and economic growth.