Major stock indexes, led by the S&P 500, are breaking out to new all-time highs, and we are encouraged by the positive action from cyclical industries that benefit the most from economic growth.

Highlights for this week include:

  • December’s Consumer Sentiment Index and January’s preliminary business surveys are consistent with a positive economic outlook as we begin 2024. While the Leading Economic Index fell once again in December, it was the smallest decline in the current down-trend, suggesting stabilization in the economic outlook.
  • Major stock indexes, led by the S&P 500, are breaking out to new all-time highs, and we are encouraged by the positive action from cyclical industries that benefit the most from economic growth. Positive economic readings with falling inflation continue to support the optimistic outlook and corporate profitability.

Significant Improvement in Consumer Sentiment Supports the Positive Outlook Narrative

The University of Michigan Consumer Sentiment Index soared in January to its highest level since July 2021. It was the biggest jump since December 2005, and came on the back of a large gain in the prior month. It resulted in the biggest two-month increase since December 1992. Both current conditions and consumer expectations jumped, led by a surge in current personal finances and the near-term outlook for business conditions.

The increase in sentiment was broad-based across age, income, education, region, and political affiliation. This significant improvement at the start of 2024 supports a positive outlook for consumer spending and overall economic growth this year.

Preliminary January Business Surveys Also Support the Positive Outlook Narrative

The January S&P Global Flash U.S. Composite PMI (Purchasing Managers Index), a timely survey of both manufacturing and service sectors, rose to its highest level since June, suggesting an improvement in business conditions as we start 2024. This was the 12th consecutive month in expansion territory, driven by persistently robust growth in services. The flash Services PMI also rose to its highest level since June, with new orders continuing to expand, rising to their best level in seven months.

The flash Manufacturing PMI showed further signs of stabilization, rising to its highest level in 15 months and first time in expansion territory since April, handily beating the consensus estimate of further contraction. New orders grew at their fastest pace in 20 months.

Business optimism about the year-ahead outlook rose to its highest level since May 2022, stemming from a rise in expected demand, capital expenditures, and new product offerings.

Leading Economic Index Shows Sign of Stabilization in the Economic Outlook

The Conference Board’s Leading Economic Index (LEI) fell slightly in December and was down for the 22nd consecutive month, suggesting continued underlying weakness in the economic outlook. However, December’s reading matched the smallest decline in the current sequence, and is a likely sign that conditions are stabilizing. Six of the ten LEI components made positive contributions last month, led by higher stock prices, some easing in credit conditions, and fewer jobless claims. Those were more than offset by higher interest rates and declining manufacturing orders.

The Coincident Economic Index, a gauge of current economic activity, rose and is up in 11 of the past 12 months, despite a persistent warning of recession from the LEI.

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