The S&P 500 index experienced its sixth 5%-10% pullback since the March lows last week with the overbought large technology stocks experiencing the biggest pullbacks.

While delays in passing a new U.S. fiscal stimulus package, the upcoming presidential election, and a potentially slower-than-expected rollout of a COVID-19 vaccine are all sources of further volatility, we remain confident that a durable global economic recovery is in place.

Last week’s U.S. and global economic releases support this sustainable recovery narrative that reinforces the outlook for corporate profit growth and further stock gains.

Last Week’s Incoming U.S. Economic Data Remain Encouraging

The OECD U.S. Composite Leading Indicator saw its fourth gain in a row, reflecting an improving outlook for growth and consistent with other leading indicators that suggest a recovery is underway.

The NFIB Small Business Optimism Index improved and is up in three of the last four months. This index has improved significantly since the pandemic low in April, helped by the CARES Act Paycheck Protection Program and other fiscal programs.

The labor market is also making progress. The JOLTS report showed Job openings increased for the third consecutive month in July, up 10.3% to 6.618 million, a sign that labor demand is firming. While leisure and hospitality jobs remain under pressure, there were notable gains in retail trade, health care and social assistance, and construction.

The Manpower Employment Outlook Survey showed a strong rebound in hiring intentions for the fourth quarter. Net hiring intentions jumped 11 percentage points, the most in four decades, to 14%. While the outlook is still six points worse than pre-recession, the increase is a clear signal that labor market conditions will continue to improve in the near-term. Hiring prospects strengthened in all four regions and across all 12 Manpower industries.

OECD Global Leading Indicators Continue to Strengthen

While the pace of recovery has slowed, the OECD Composite Leading Indicators (designed to anticipate turning points in economic growth) continued to strengthen from the COVID-19 crisis lows. This improvement in the leading indicators is consistent with the improvement in the global business surveys that we saw last week.

China’s economic indicators tend to lead other global indicators by several months and China was the first in and first out of the coronavirus crisis. Consequently, we continue to watch China’s economic developments closely. China’s business surveys, exports, sales of homes, cars, and retail goods suggest that both external and domestic demand growth is strengthening. Chinese stocks have also made strong gains since the March lows, consistent with improving economic developments.

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