Despite concerns that trade talks could fall apart, our base case is that the trade truce will hold and the global economy will show improvement as we move into 2020.

We are encouraged that global manufacturing indicators have shown improvement for four straight months, with Chinese indicators showing important improvement. The U.S. labor market remains healthy, which continues to provide major support for economic growth. Recent Federal Reserve interest rate cuts should also support the economy and stocks as we move into 2020.

Dow Jones-
S&P 5000.227.919.1
MSCI EAFE0.419.316.9
MSCI Emerging Markets0.911.510.4
10-year U.S. Treasury1.842.722.41
30-year U.S. Treasury2.283.022.74

Source: Janney ISG, Bloomberg. Data as of 12/06/19.

U.S. Economic Reports Continue to Show a Healthy Consumer

We received several encouraging data points last week, led by Friday’s labor market and consumer confidence reports. The consumer is the linchpin for this economic expansion and the incoming data remains consistent with a healthy consumer. This is a positive signal for the economy and stocks as we move through the all-important holiday shopping season.

Friday’s November job report exceeded all expectations with the labor market growing by 266,000, while the prior two months were revised up by a total of 41,000 jobs. The unemployment rate ticked back down to 3.5% (from 3.6%) while wage growth remained muted at 3.1% year-over-year. The weekly initial jobless claims report continues to confirm a healthy labor market with claims falling 10,000 to 203,000—the lowest level since April and remaining at historically low levels.

The healthy labor market continues to support high consumer confidence. The Michigan Consumer Sentiment Index rose for the fourth straight month and to the highest level since May, with both current conditions and expectations strengthening.

The healthy labor market with muted wage inflation and elevated consumer confidence suggest future consumption should be well supported while the Federal Reserve can continue to support the economy via low interest rates.

We received mixed messages from the November releases of two important manufacturing surveys. The ISM Manufacturing Index continued to show contracting manufacturing activity while the Markit Manufacturing PMI rose to its highest level since April, suggesting stronger expansion in manufacturing activity. We anticipate these surveys will converge in a positive direction, especially considering the improving global manufacturing backdrop.

The ISM Non-Manufacturing Index (NMI – a business survey of the service sector) showed service activity moderating. While it peaked in September 2018, it remains in expansion territory, and consistent with trend-like economic growth. The combined latest readings of the NMI and the ISM Manufacturing Index correspond to 1.4% annual economic growth, a notably slower pace than earlier in the year. The Philly Fed state leading indexes showed growth over the next six months and is projected to increase in 44 states and decrease in six states. This indicator is also consistent with slower, but still positive, economic growth.

Composite Business Surveys Show Improving Global Economic Conditions

The J.P.Morgan Global Composite PMI—a timely business survey of both global manufacturing and services—posted a four-month high in November, as rates of growth picked up in both the manufacturing and service sectors.

Improving growth was led by China, which saw its rate of expansion hit a 21-month high. Economic upturns were also seen in the euro area, India, Brazil and Russia. Within the eurozone, increased activity in France, Spain and Ireland offset downturns in Germany and Italy. Economic activity contracted in Japan, the UK and Australia.

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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