Despite stalled stimulus talks and a stubbornly resilient virus, we remain optimistic on the outlook for stocks and other risk assets.

This is based on economic readings that again last week signaled a rebound in economic activity. We also believe a follow-on stimulus package will ultimately happen that will further bolster the recovery and help the economic sectors hardest hit by the pandemic. In addition, the significant advances in COVID-19 treatment protocols reduces the likelihood of additional severe lockdown measures that harm economic activity.

Last Week’s Economic Readings Support Recovery Narrative
Consumer spending is a major driver of economic activity so the monthly release of retail sales data is watched closely by market participants. Encouragingly, retail sales jumped a broad-based, and much better-than-expected, 1.9% in September, the most in three months. In the third quarter, sales increased 13.5%, more than reversing the 7.1% drop in the second quarter, indicative of a sharp economic rebound.

The improvement in all measures of retail sales from deep negative territory in the second quarter reflects pent-up demand that had built up during the lockdowns. Importantly, consumers are spending more because, unlike in other recessions, disposable personal income rose, boosted by stimulus checks and enhanced unemployment benefits. We expect the ultimate passage of additional fiscal stimulus to further bolster the consumer and economy in the coming quarters. Corroborating the sales data, The University of Michigan Consumer Sentiment Index rose for the third consecutive month in October.

Encouragingly, business optimism continues its recovery. The NFIB Small Business Optimism Index rose in September and is up in four of the past five months. It is now back to a historically elevated level and very close to where it was in February. The rebound in optimism suggests that the fiscal stimulus has worked well to support small business activity which has been hit particularly hard by the pandemic lockdowns and the recession. Confirming small business optimism, the Duke CFO Survey for the third quarter showed optimism for the U.S. economy and their own companies’ prospects both posted their highest levels this year.

Healthy retail sales, and improving consumer and business optimism all bode well for the sustainability of the economic recovery—and ultimately stocks and other risk assets.

China’s Economic Recovery Remains a Positive Signpost
We follow Chinese economic readings closely for several reasons. China is the second-largest global economy; their economic activity is a major driver of overall global growth, and typically leads global activity by several months. China was also the first to lockdown because of the pandemic and was the first to reopen.

Encouragingly, China’s economy continues to experience a V-rebound with third quarter economic growth up 4.9% year-over-year with inflationary pressures remaining tame. The September data for retail sales, industrial production and trade all show momentum heading into the fourth quarter. This bodes well for overall global economic activity heading toward 2021 which should support stocks and other risk assets.

Disclaimer
This report is provided for informational and educational purposes only and shall in no event be construed as an offer to sell or a solicitation of an offer to buy any securities or a recommendation for any strategy or to buy, sell, or hold any product. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis, or trading strategies that differ from the opinions expressed here. 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. This report is the intellectual property of Janney Montgomery Scott LLC (Janney) and may not be reproduced, distributed, or published by any person for any purpose without Janney’s prior written consent. This presentation has been prepared by Janney Investment Strategy Group (ISG) and is to be used for informational purposes only. In no event should it be construed as a solicitation or offer to purchase or sell a security. Past performance is no guarantee of future performance and future returns are not guaranteed. There are risks associated with investing in stocks such as a loss of original capital or a decrease in the value of your investment. For additional information or questions, please consult with your Financial Advisor.

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