Stocks are making new all-time highs due to earnings coming in better-than-expected, lower economic policy uncertainty on reduced trade tensions, strong labor market data, and improving global manufacturing indicators.

We expect additional improvements to market conditions supported by lower global interest rates, further improvements in China’s economic data, a healthy U.S. consumer, and improving corporate profits as we head toward 2020. Moderating risks around the U.S.-China trade war and Brexit should help business confidence which supports capital expenditures and labor market health.

Dow Jones1.421.18.3
S&P 5000.925.512.5
MSCI EAFE0.518.810.4
MSCI Emerging Markets1.513.110.4
10-year U.S. Treasury1.942.722.41
30-year U.S. Treasury2.423.022.74

Source: Janney ISG, Bloomberg. Data as of 11/8/19.

U.S. Economic Data Remains Consistent with Further Growth

The major U.S. economic news last week came from the service sector surveys and consumer confidence, with readings that remain positive for the economy.

The ISM Non-Manufacturing Index (NMI—a service sector business survey) suggests services activity accelerated in October. It indicates that the weakness in manufacturing activity (which has now contracted for three straight months) is not a significant drag on the rest of the economy. However, on a 12-month average basis, both the NMI and the ISM Manufacturing Index have rolled over this year, as economic growth has moderated under the weight of trade and geopolitical tensions and amid a diminishing impact from tax cuts. The latest service and manufacturing surveys are consistent with 1.4% annual economic growth.

The University of Michigan Consumer Sentiment Index ticked up in the preliminary November survey with consumer expectations rising for the third month in a row. While sentiment peaked in March 2018, it remains elevated, which suggests that consumer spending will continue to support the ongoing economic expansion.

Initial jobless claims also remain consistent with a healthy labor market and further economic growth. Initial jobless claims fell to 211,000, near its lowest level since 1969, confirming a tight job market. This is a timely and accurate economic indicator that remains positive for further economic growth.

Composite Business Survey Suggests Sluggish Global Economy

The J.P.Morgan Global Composite Output Index (a business survey produced by J.P.Morgan and IHS Markit) posted its lowest reading since February 2016 and is consistent with only a mild increase in economic output. Despite the sluggish survey readings, manufacturing is encouragingly showing improvement.

National survey data signaled further growth in the U.S., euro area, China, Brazil and Russia. Disparities remained between the main eurozone economies, however, with solid growth in France contrasting with ongoing contraction in Germany. The UK and Australia both saw economic activity stagnate, while downturns were signaled in Japan (first time in more than three years) and India (second month in a row).

Better Than Expected Earnings Season

With 89% of the S&P 500 stock index having reported third-quarter (3Q) results, corporate earnings are coming in better than expected. While earnings growth is actually negative (-1.0% but an improvement from the originally expected -3.0%), the median S&P 500 firm reported earnings-per-share (EPS) growth of +5%. Excluding Energy, S&P 500 EPS rose by 1% in 3Q. Energy EPS declined by 36% year/year in 3Q, as oil prices were 18% lower on average than the year-ago period. Defensive sectors Real Estate (+8%), Health Care (+7%), and Utilities (+6%) delivered the fastest earnings growth.

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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