The major stock market indexes reached new highs last week with globally exposed cyclical sectors continuing to outperform domestically oriented defensive sectors. We are encouraged by this signal that suggests stocks are anticipating improving global economic conditions.

This is consistent with the recent stabilization in other global leading indicators that we follow.

Dow Jones1.222.613.4
S&P 5000.926.716.6
MSCI EAFE0.119.013.4
MSCI Emerging Markets-1.511.410.1
10-year U.S. Treasury1.832.722.41
30-year U.S. Treasury2.303.022.74

Source: Janney ISG, Bloomberg. Data as of 11/15/19.

Earnings are coming in better-than-expected while trade tensions are reduced. Inflation also remains tame, which is allowing global central banks to keep interest rates low. These factors should continue supporting stocks and other risk assets.

U.S. Economic Data Remains Consistent with Further Growth

The major U.S. economic news last week came from small business optimism, retail sales, and consumer prices, with readings that remain positive for the economy.

The National Federation of Independent Business (NFIB) Small Business Optimism Index edged up in October and while the index peaked in August 2018, it remains elevated by historical standards and suggests that business conditions are still favorable. Eight of the 10 NFIB components advanced last month, led by plans to increase capital expenditures and inventories.

Retail sales increased 0.3% in October, and are up 3.8% on a year-over-year (y/y) trend basis. The trends in retail sales, which account for about 1/3 of consumer spending, support a continued outlook of moderate economic growth.

While the October Consumer Price Index (CPI) rose the most in seven months, the increase was driven by volatile gasoline prices. On a y/y basis, the CPI edged up slightly to 1.8% from 1.7% in the previous month, while core CPI ticked down to 2.3% from 2.4%. The Producer Price Index (PPI) report also confirmed these muted inflation trends. Subdued inflation pressures are giving the Federal Reserve significant flexibility in maintaining low interest rates.

Initial claims for unemployment insurance spiked 14,000 last week, the most since April, to 225,000, a five-month high. While claims remain at a very low level compared to history, and indicate that labor markets remain tight, we are watching this trend closely for early signs of changes in labor demand.

Composite Leading Indicators Suggest Sluggish Global Economy

Composite leading indicators (CLIs), designed to anticipate turning points in economic activity relative to trend six to nine months ahead, continue to anticipate stable below-trend growth momentum in the OECD area as a whole.

Stable growth remains the assessment for France and Canada and is now anticipated in Japan and Italy, with similar signs now emerging in the euro area as a whole. The CLIs for the United States and Germany continue to point to easing growth, which is now the assessment for the United Kingdom, although large margins of error persist due to continuing Brexit uncertainty. Among major emerging economies, the CLIs continue to signal stable growth in China and Brazil and now, also, in Russia. Easing growth remains the assessment in India.

Better Than Expected Earnings Season

With 94% of the S&P 500 stock index having reported third-quarter (3Q) results, corporate earnings are coming in better than expected. Earnings growth is on pace for +1.0%, an improvement from the originally expected -3.0%, while the median S&P 500 firm is seeing earnings growth of +5%.

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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