While it is too early to get a firm assessment on the impact of rising oil prices and Middle East tensions, we remain encouraged by the incoming economic data and the potential for reduced trade tensions.

Oil price spikes by themselves do not cause recession, and we will be watching business and consumer confidence and other indicators closely to further assess the impact of the oil price spike.

IndexWTDYTD1-YR
Dow Jones1.618.86.7
S&P 5001.021.75.7
MSCI EAFE2.014.93.1
MSCI Emerging Markets1.98.73.8
YieldsCurrent20182017
10-year U.S. Treasury1.92.722.41
30-year U.S. Treasury2.373.022.74

Source: Janney ISG, Bloomberg. Data as of 9/13/19.

Key to the oil price outlook is the length of time that the lost Saudi production (5.7 million barrels per day) is offline and the magnitude of the rise in oil prices. Meanwhile, the U.S. consumer is in very good shape with a high 7.7% savings rate that should help withstand temporarily higher oil prices. Stay tuned for further assessments.

U.S. Economic News Remains Mostly Positive

Last week brought key U.S. economic news from the leading indicator, small business optimism, consumer prices and sentiment, and retail sales. This data remains consistent with a healthy consumer and further economic growth.

On a smoothed year-over-year basis, retail sales increased 3.7%, the fastest pace since last November. Discretionary retail sales improved and is showing notable improvement this year. This reflects underlying consumer strength, which reduces the risk of recession in the near-term, despite some weakness in other economic indicators.

In addition, the Reuters/University of Michigan Consumer Sentiment Index rebounded with both current conditions and expectations improving. While sentiment is off its cycle peak, it is still elevated, and bodes well for consumer spending growth this year.

The August NFIB Small Business Optimism Index saw its second decline in the past three months. The index peaked a year ago, and while it is still high by historical standards, it shows that business sentiment has deteriorated—with fewer respondents expecting the economy to improve in the next six months.

While the OECD U.S. Composite Leading Indicator (CLI) continued to suggest weaker-than-average economic growth, it does not yet imply a recession.

Initial claims for unemployment insurance dropped 15,000 last week, the most in four months, to 204,000, while the four-week average of claims fell to 212,500 - hovering near its lowest level since 1969. The jobs market remains as tight as ever, with businesses reluctant to lay off workers, despite some signs of softer economic growth. Continued solid labor demand reduces the risk of recession in the near-term.

Growth Continues to Ease in Largest OECD Economies

The OECD Composite leading indicators (CLIs), designed to anticipate turning points in economic activity relative to trend six to nine months ahead, continue to anticipate easing growth momentum in the United States and the euro area as a whole, particularly in Germany. However, the CLIs continue to signal stable growth momentum in the OECD area as a whole.

In the United Kingdom, for which large margins of error persist due to Brexit uncertainty, stable growth remains the assessment. In Japan and Italy, the CLIs continue to point to stabilizing growth. Among major emerging economies, stable growth remains the assessment for Brazil, Russia and China. However, signs of easing growth are emerging in India.

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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