Stocks continue to trade near all-time highs and are supported by several factors.

  1. The incoming economic data remains consistent with further positive economic growth, despite the existence of recession fears since late last year when the yield curve inverted.
  2. Global manufacturing conditions have been weak since peaking in early 2018—conditions have been showing signs of stabilization for several months now.
  3. With a backdrop of low inflation, the Federal Reserve has been cutting interest rates, which reduces the chance of recession (yield curve is no longer inverted).
  4. Third quarter corporate profits came in better than expected and expectations are for further growth ahead.
  5. Trade tensions have been reduced with stocks anticipating some type of phase-one deal.
  6. Considering the low interest rate environment we are currently in, stocks are reasonably valued.
Dow Jones-0.422.116.7
S&P 500-0.326.319.8
MSCI EAFE-0.618.313.6
MSCI Emerging Markets-0.011.410.6
10-year U.S. Treasury1.772.722.41
30-year U.S. Treasury2.223.022.74

Source: Janney ISG, Bloomberg. Data as of 11/22/19.

U.S. Economic Data Remains Consistent with Further Growth

The major U.S. economic news last week was mixed with healthy readings from housing, consumer confidence, and business surveys, offset by weak readings in the leading indicator and state indexes. In sum, the data remains consistent with further positive economic growth with low probability of recession.

All of the monthly housing readings were positive last week. Existing home sales rose 4.6% on a year-over-year trend basis, while housing starts and permits accelerated, up 8.5% and 14.1% y/y, respectively. Meanwhile, the National Association of Home Builders (NAHB) Housing Market Index remained close to its highest level since mid-2005. Elevated builder confidence bodes well for future housing starts, and is supported by low mortgage rates, healthy job growth, and high consumer confidence. Housing is an important cyclical component of the economy and its health bodes well for further economic growth.

The Michigan Consumer Sentiment Index remained elevated—reaching a four-month high. This suggests consumer spending will continue to support the economic expansion.

The preliminary November business surveys showed private sector activity picking up. The Markit U.S. Flash Manufacturing PMI rose to a seven-month high, while the Flash Services PMI reached a four-month high. Both indicate that activity has strengthened in mid-fourth-quarter, but nonetheless remains weaker than a year ago. Importantly, new orders turned up in both services and manufacturing, while manufacturing production was the best in ten months. Backlogs rebounded, a sign of re-emerging pressure on operating capacity.

These positive economic readings were offset somewhat by the Conference Board Leading Economic Index that declined slightly, and the Philly Fed State Coincident Indexes, which showed economic weakness spreading across more states. However, both of these readings remain consistent with positive, albeit slower, economic growth ahead.

Initial claims for unemployment insurance were unchanged last week at 227,000, while the four-week moving average rose to 221,000, the highest level since June. 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 and weaker economic conditions.

Preliminary Business Surveys Suggest Stabilization of Global Manufacturing Conditions

In addition to the improvements in U.S. manufacturing conditions mentioned above, the preliminary November manufacturing surveys for Europe and Japan both showed improvement from October’s readings. While both are still depressed, they do appear to have bottomed, suggesting global manufacturing activity is improving.

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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