Stocks reached all-time highs last week, driven higher by better-than-expected earnings news and positive economic data.

The Federal Reserve also lowered interest rates again last week and low inflation continues to give the Fed flexibility with monetary policy. Manufacturing conditions are also showing signs of stabilization. These factors suggest an outlook of further economic growth, which should continue to support stock prices.

Dow Jones1.419.510.4
S&P 5001.524.414.2
MSCI EAFE1.218.211.7
MSCI Emerging Markets1.311.411.2
10-year U.S. Treasury1.712.722.41
30-year U.S. Treasury2.193.022.74

Source: Janney ISG, Bloomberg. Data as of 11/1/19.

U.S. Economic Data Remains Consistent with Slower but Positive Growth

The major U.S. economic news last week came from Friday’s labor market report and manufacturing surveys. The labor market remains strong while the manufacturing sector is showing signs of stabilizing after recent weakness.

Friday’s monthly jobs report showed the economy added a better-than-expected 128,000 jobs in October while hiring in the previous two months was revised higher by a significant 95,000 jobs. The unemployment rate ticked up to 3.6% from the near 50-year low of 3.5%—this was because of an influx into the labor force (higher participation)—a sign of confidence in the job market. Average hourly earnings remained steady at 3.0% on a year-over-year basis, which suggests inflation should remain muted. This bodes well for low interest rates and a longer economic expansion.

Initial jobless claims also remain consistent with a healthy labor market. While claims rose to 218,000, the less volatile four-week average ticked down to 214,750, near its lowest level since 1969, confirming the tight job market. While the Conference Board’s Consumer Confidence Index edged lower last week, it remains elevated and is also consistent with further economic growth.

The advanced release of third-quarter economic growth showed solid consumer spending and housing investment supported economic growth of 1.9%. Personal consumption expenditures rose at a 2.9% annual rate while residential investment increased at a 5.1% annual rate. With the healthy labor market and low interest rates, we remain bullish on the consumer and housing (where there is still pent-up demand). However, capital expenditures (business spending) remained weak for the second quarter in a row. Business spending continues to be impacted by trade tensions and the global slowdown.

Signs of Improving U.S. Manufacturing Conditions

While the ISM manufacturing survey continues to indicate weak manufacturing conditions, the more domestically focused Markit manufacturing survey showed improving manufacturing conditions for the second month in a row. Encouragingly, both surveys showed forward-looking new orders clearly turning up, supported in large part by a sharp rebound in new export orders.

Signs of Global Manufacturing Improvement

While the J.P. Morgan Global Manufacturing PMI (a timely business survey) continues to show contracting global manufacturing conditions, it has improved for three straight months—suggesting that manufacturing conditions may have bottomed in July.

Earnings Season Remains Encouraging

With about 75% of the S&P 500 stock index having reported third-quarter results, corporate earnings are coming in better than expected with 78% of companies beating their expectations. While earnings growth is actually negative (-1.0% but an improvement from the originally expected -3.0%), companies are lapping tough comparisons due to last year’s corporate tax cuts, which benefitted 2018 earnings. The big negative earnings numbers are also coming from energy and material companies that are dealing with falling commodity 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.

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