Market volatility has picked up in sympathy with renewed U.S.-China trade tensions.

While this is a fluid situation that we are monitoring closely, we do not anticipate that these trade tensions will derail economic growth. The U.S. economic indicators remain healthy and China has applied significant stimulus to its economy—and has room to apply more. The global economy has also shown signs of recovering from last year’s slowdown—with China’s stimulus gaining traction and the Federal Reserve no longer raising interest rates.

Dow Jones-
S&P 500-
MSCI EAFE-2.610.4-5.5
MSCI Emerging Markets-4.57.6-8.1
10-year U.S. Treasury2.472.722.41
30-year U.S. Treasury2.893.022.74

Source: Janney ISG, Bloomberg. Data as of 5/10/19.

Encouraged by Muted Inflation and a Rebound in Business Optimism

While it was a light week for U.S. economic data, we did receive encouraging news on inflation, the labor market, and small business optimism. The April reading of the Consumer Price Index (CPI) came in below expectations and is up 2% on a year-over-year (y/y) basis with the core CPI (excludes volatile energy and food) up 2.1% y/y. The CPI and other inflation readings continue to show muted inflationary pressures, which supports the Federal Reserve’s (Fed) patient stance on future interest rate changes.

The Job Opening and Labor Turnover Survey (JOLTS) showed labor demand strengthened in March, as job openings rose 4.8% to 7.5 million, pushing the job openings rate to 4.7%, close to a record high. However, the number of hires slipped 0.6% to 5.7 million, suggesting that employers are struggling to find workers with the requisite skills. The number of unemployed per job opening fell to 0.83 (more job openings than unemployed workers), indicating tight labor market conditions. The layoff rate ticked down to 1.1%, matching its record low, as firms held on to their staff. Healthy labor market indicators are important because they suggest a confident consumer can continue supporting economic growth.

The Gallup Small Business Index rebounded in the second quarter to a record matching level, completely reversing the first quarter decline. Both current and future conditions improved, with current conditions posting a fresh all-time high. Concerns about a possible recession diminished. More business owners felt better about their financial situation, likely reflecting stronger sales, rising stock prices, and a more dovish Fed. Small businesses are major drivers of the economy and their health is important for future economic growth.

April’s Global Business Surveys Continue to Suggest Subdued Global Growth

The J.P. Morgan Global Composite Output Index (a combined manufacturing and services business survey) slipped in April to a level that suggests trend-like global economic growth. The global service sector continued to outperform its manufacturing counterpart where conditions remain lackluster.

National survey data showed the strongest rates of output growth occurred in Ireland, Russia, the U.S., Spain, and China. Italy was the only nation covered to register contraction. Australia saw economic activity stagnate, while upturns were weak in the U.K., France, and Brazil.

Earnings Remain Better Than Expected

At the start of first quarter reporting season, consensus expectations were for a -2.5% contraction in earnings-per-share (EPS). Expectations are now in positive territory (+2.4%). 91% of the S&P 500’s market capitalization has reported first quarter results with earnings beating by 7%, with 72% of companies exceeding their estimated results. This is encouraging since higher earnings revisions are a critical support for stock prices.

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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