Stocks reached new record highs last week, supported by an outlook for improving global economic growth and reduced trade tensions.

We remain encouraged by the incoming U.S. economic data that remains consistent with further economic growth. China’s economic data continues to show improvement as their significant stimulus gains traction—this should lead to an improving global backdrop.

Dow Jones1.125.027.5
S&P 5001.731.033.2
MSCI EAFE0.622.222.7
MSCI Emerging Markets2.017.818.9
10-year U.S. Treasury1.922.722.41
30-year U.S. Treasury2.343.022.74

Source: Janney ISG, Bloomberg. Data as of 12/23/19.

The phase-one U.S.-China trade deal and recent United Kingdom election (which should lead to an orderly Brexit) are also reducing uncertainty for business decisions. Low inflationary pressures are giving global central banks flexibility with low interest rates, which should also support economic growth into 2020. This should lead to higher corporate profits and ultimately higher stock prices in 2020.

A Healthy Consumer and Housing Market Bode Well for U.S. Economy

The Bureau of Economic Analysis (BEA) Personal Income and Outlays report showed income jumped 0.5% in November, the most in nine months, and above the consensus of 0.3%. Faster income growth translated into more spending with personal consumption expenditures (PCE) rising 0.4%, the most since July. In addition, the personal saving rate ticked up to 7.9% from 7.8%, and has been elevated throughout this expansion—putting consumers in a better position to withstand negative economic events.

The Personal Income and Outlays report also showed inflation pressures remain muted. The PCE Price Index (a measure of consumer prices) rose 1.5% year-over-year (y/y), while core PCE prices (excludes volatile food and energy prices) were up 1.6% y/y. Both remain below the Federal Reserve’s (Fed) inflation target of 2.0%. These low inflation readings continue to give the Fed considerable flexibility with its low interest rate policy.

The Job Opening and Labor Turnover Summary (JOLTS) report showed the number of job openings rose to 7.3 million. Job openings continue to outnumber the unemployed, reflecting tight labor market conditions. The quit rate was unchanged at 2.3%, near its highest level since 2001, indicating strong worker confidence.

The healthy labor market is reflected in strong consumer sentiment with the Michigan Consumer Sentiment Index up four straight months and reaching its highest level since May. Sentiment is up 1.0% y/y, which is bullish for consumer spending and overall economic growth at year end.

Meanwhile, housing starts rose a better-than-expected 3.2% in November to a 1.365 million unit annual rate, the second highest level since June 2007. Building permits rose 1.4%, to the highest level since May 2007. On a y/y basis, both housing starts and permits rose, up 13.6% and 11.1%, respectively, reflecting strengthening momentum in housing market activity.

This strengthening housing momentum is reflected in surging homebuilder confidence. The NAHB Housing Market Index (HMI) jumped five points in December, the most in two years, to 76, its highest level since June 1999. The report noted that this high level of builder confidence stems from "a low supply of existing homes, low mortgage rates, and a strong labor market." It supports a positive outlook for housing starts in early 2020, even though builders continue to face supply-side constraints for labor and land, as well as high development costs.

A healthy consumer, labor market, and housing market, with low inflation and low interest rates, remain consistent with further economic 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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