Highlights for This Week Include:

• The Philly Fed state coincident indicators, Chicago Fed National Activity Index, and now even the Conference Board’s Leading Economic Index are consistent with further economic growth.
• Stock market dynamics remain healthy with a broadening out of participation across stocks and industries. We continue to favor cyclicals, led by technology-related industries.

Recent Major Indicators Consistent with a Growing Economy

State economic indicators are helpful as a measure of how broad-based economic growth is across the country and send an important signal at major economic turning points. Consequently, we follow them closely. The Philly Fed state coincident indexes showed that economic activity strengthened across most of the country in the fourth quarter of 2023 and was still elevated at the start of 2024. The current reading confirms continued growth and minimal risk of recession in the near term.

The Chicago Fed National Activity Index (CFNAI) is another closely followed indicator that moved higher in February, mostly reflecting a rebound from a weather-related slump in the prior month. All four broad categories of its indicators increased from the prior month and three made positive contributions to the CFNAI, led by production-related indicators. The CFNAI remains consistent with further economic growth, albeit slower than earlier in the economic expansion.

Even the Conference Board’s Leading Economic Index (LEI) picked up in February, its first increase in two years. Seven of its ten components made positive contributions, led by stock prices and manufacturing hours worked. The Conference Board is no longer forecasting a recession for this year, but it still expects economic growth to slow significantly in the second and third quarters this year, largely because of headwinds to consumer spending from rising consumer debt and high interest rates.

We Continue to see Bullish Signals for Stocks

Major stock market indexes including the S&P 500 and Nasdaq 100 continue to hover at all-time highs, and we see important reasons to remain bullish on stocks. NYSE daily Net New Highs surpassed the prior high from December 4, 2023, signaling breadth remains healthy with a broadening-out of the bull market. The S&P MidCap 400 is hitting all-time highs while Small-Caps are also showing promising technical developments. While technology-related sectors continue to show leadership, other important cyclical sectors are making new all-time highs, including Industrials and Financials.

The 10-year Treasury yield, whose significant rise was a major catalyst for 2022’s market selloff, remains below the key technical level of 4.35%. The U.S. dollar also remains below key levels in a sign of risk-on. Uptrends remain intact for broad global indexes and major countries in another sign of broad participation. The corporate bond market is also sending positive signals with low concerns over future defaults.