Stocks continue to reach new all-time highs and we remain positive as we start the new year.

The U.S. labor market remains healthy and is a key pillar for the economy. The just released global business surveys showed growth accelerating at year-end, which reinforces our view that the global backdrop will improve in 2020. The likely signing of the phase-one U.S.-China trade deal this week should also lead to further improvements in global conditions.

Dow Jones0.71.123.0
S&P 5001.01.128.3
MSCI Emerging Markets0.91.716.7
10-year U.S. Treasury1.821.922.68
30-year U.S. Treasury2.282.393.01

Source: Janney ISG, Bloomberg. Data as of 1/10/19.

U.S.-Iranian tensions de-escalated by week’s end with both sides exhibiting restraint. While this crisis will likely be a recurring theme in 2020, we view it as a limited threat to economic growth. There are buffers to higher oil prices including OPEC spare capacity and U.S. shale production. Shale production has made the U.S. the largest global energy producer and made the U.S. economy much more resilient to higher oil prices.

U.S. Economic Developments

Friday’s labor market report saw the Prime Age Labor Force Participation Rate make a new cycle high of 82.9%. This is up an impressive 2.5% from its 2015 low, after having been in a declining trend for 15 years. This is a positive development for consumer spending and is keeping wage inflation tamer for longer—thus helping prolong the economic cycle.

Nonfarm payrolls increased 145,000 while the unemployment rate remained at a 50-year low of 3.5%. Importantly, earnings growth eased to a 2.9% year-over-year (y/y) rate from 3.1% y/y, indicating that wage inflation remains muted.

Payroll gains have moderated amid softer economic growth last year and tight labor market conditions—with a lack of available qualified workers to fill the 7.3 million job openings. Even so, private businesses added 1.95 million jobs in 2019, while total nonfarm payrolls increased by 2.11 million. It was an unprecedented 10th consecutive year of job gains, matching the longest economic expansion on record. This report is consistent with further economic growth and benign inflationary pressures that should allow the Federal Reserve to maintain its current outlook of steady interest rates.

Confirming the healthy labor market, initial claims for unemployment insurance fell 9,000 last week to 214,000, with the four-week average dropping 9,500 to 224,000. While the trend bottomed in the spring of 2019, it has moved little since then and remains close to its lowest level since 1973. This timely and accurate economic indicator reflects historically tight labor market conditions.

The ISM Non-Manufacturing Index (NMI – a timely service sector business survey) rebounded to a four-month high in December, as services activity strengthened. Contrary to its manufacturing counterpart, the NMI is well above the break-even level of 50, and is consistent with a continued moderate economic expansion. The combined latest readings of the two ISM indexes correspond to 2.2% economic growth annually, based on historical data and consistent with the performance of the current expansion.

The Conference Board’s CEO Confidence Index rebounded, as trade and tariff issues abated. However, business leaders remain concerned about global growth in 2020. This survey is consistent with a muted capital expenditure outlook.

Global Economic Growth Accelerates at End of 2019

The J.P.Morgan Global Composite Output Index (a combined service and manufacturing business survey) came in positively at the end of the year, reinforcing a view that activity will improve in the coming quarters. The all-industry activity PMI increased for the second month to an eight-month high. Improving trends in new orders, employment and business sentiment also suggest that further headway should be made at the start of the year. International trade remains the main drag on the global economy and reduced U.S.-China trade tensions should support growth in 2020.

This report is provided for informational purposes only and shall in no event be construed as an offer to sell or a solicitation of an offer to buy any securities. The information described herein is taken from sources which we believe to be reliable, but the accuracy and completeness of such information is not guaranteed by us. The opinions expressed herein may be given only such weight as opinions warrant. This Firm, its officers, directors, employees, or members of their families may have positions in the securities mentioned and may make purchases or sales of such securities from time to time in the open market or otherwise and may sell to or buy from customers such securities on a principal basis. Past performance is not necessarily a guide to future performance.



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