While we are watching Middle East developments closely, we remain optimistic on our outlook for the economy and stocks.

The primary threat to our positive outlook is from higher oil prices. However, the U.S. economy's exposure to rising oil prices is relatively low—due to the significant proliferation of U.S. shale oil and gas. America is now a net energy exporter and the world is far less exposed to potential Mideast supply shocks (as evidenced by the brief oil price spike in reaction to last year’s attack on Saudi’s oil infrastructure). In addition, America's oil intensity (oil consumed per unit of GDP) has declined significantly in recent decades.

Dow Jones0.00.429.3
S&P 500-
MSCI EAFE0.00.323.8
MSCI Emerging Markets0.50.821.7
10-year U.S. Treasury1.791.922.68
30-year U.S. Treasury2.242.393.01

Source: Janney ISG, Bloomberg. Data as of 1/3/19.

After four months of improvement, the pullback in global manufacturing indicators was disappointing. But this type of pullback is common in the early stages of a manufacturing recovery and we maintain our positive outlook for global improvements in 2020.

A Healthy Consumer Offsets Manufacturing Weakness for U.S. Economy

The incoming U.S. economic reports remain consistent with a healthy consumer that is offsetting manufacturing weakness and producing steady economic growth.

While off its cycle peak, the Conference Board’s Consumer Confidence Index remains elevated and near its highest level since 2000. It suggests that consumer spending will maintain its current momentum and will continue to drive economic growth.

A healthy consumer continues to support improving housing conditions. Pending home sales rebounded 1.2% in November, up in three of the past four months. On a year-over-year basis, contract signing increased 7.4%, the most since June 2015, with all four regions posting gains, led by the West. Housing demand has strengthened, aided by low mortgage rates and solid household fundamentals (low unemployment, faster wage growth, and stronger household formations). We expect this positive housing market momentum to continue in 2020.

Initial claims for unemployment insurance slipped 2,000 last week to 222,000, while the four-week average climbed to 233,250. While the trend in claims bottomed last spring, it is still very low by historical standards, as labor market conditions remain tight.

The closely watched manufacturing business surveys, which come out at the beginning of every month, continue to show weak manufacturing conditions. The domestically oriented Markit U.S. Manufacturing PMI continues to signal a slow expansion—encouragingly though, new orders expanded at the second-fastest rate since April. The more globally-oriented ISM Manufacturing Index continues to suggest contraction in factory activity, with firms being negatively impacted by slower global growth and the U.S./China trade war.

Global Manufacturing Conditions Remained Weak at End of 2019

Global manufacturing remained lackluster at the end of 2019. Growth of production and new orders were both marginal, as weak international trade flows stymied hopes of a stronger recovery from the mid-year downturn in the sector.

National PMI data signaled expansions in 14 nations. The main drag on global manufacturing remained the euro area, which saw output fall for the eleventh successive month. This mainly reflected the ongoing steep contraction in Germany that also impacted neighboring countries such as Austria and the Czech Republic. Among the largest industrial nations covered, China, South Korea and Brazil expanded whereas Japan, the UK and Italy contracted. We continue to anticipate global manufacturing improvement in 2020, driven by significant Chinese economic stimulus, reduced trade tensions, and low interest rates.

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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