Highlights for This Week Include:

September business surveys, Chicago Federal Reserve (Fed) National Activity Index, Philly Fed state coincident indexes, and jobless claims are all consistent with further economic growth. Indeed, the Atlanta Fed GDPNow model estimates third-quarter economic growth of a healthy 2.9%.

Stocks remain in an up-trend, with the S&P 500 trading at an all-time high, encouragingly led by economically sensitive cyclical stocks.

China is rolling out stimulus to support its economy and stock market. This is supporting deep cyclical stocks tied to global economic growth with the Material and Industrial sectors now trading at all-time highs.

Business Surveys, National Activity Index, and State Indexes Consistent with Further Economic Growth

The S&P Global Flash U.S. Composite PMI (a business survey that provides an early look at September’s private sector economic activity, including both services and manufacturing) remained well into expansion territory and near the highest level since early 2022, indicating continued robust private sector growth. This suggests that the economy remains on a soft-landing track.

The service sector remains healthy, with new orders, export orders, and backlogs growing at a robust pace, indicating firm demand. Manufacturing, a much smaller part of the economy, remains sluggish, with the survey at the lowest level since June 2023.

Optimism about the 12-month outlook for growth fell to its lowest level since October 2022 and the second lowest since the pandemic. The deterioration reflected concerns about future demand, particularly in services, and uncertainty about the presidential election.

The Chicago Fed National Activity Index (CFNAI) showed improvement in August, led by stronger industrial production, and remains consistent with continued economic expansion.

In a sign that economic growth momentum is slowing, the Philly Fed state coincident indexes for August showed weakness across more states. Although the average percentage change across all 50 states was practically zero, the U.S. coincident index, based on the same methodology as the state indexes, increased 0.3% last month and was up 2.7% y/y, about in line with the gain per annum historically.

This suggests that growth is driven by larger states. Indeed, the coincident indexes of California, Texas, and Florida, which are in the top five by economic output, all rose from the prior month and accelerated on a y/y basis. Big states growing at solid rates suggests a low probability of a near-term recession.

Jobless claims, a timely and accurate economic indicator, remain consistent with a healthy labor market and further economic growth. Claims fell to a four-month low last week and remain well within their range since late 2021.

Thoughts On Recent Market Dynamics:

Stocks remain in an up-trend, with the S&P 500 reaching new all-time highs. Encouragingly, cyclical stocks, closely tied to economic growth, are reacting favorably after lagging the defensive sectors heading into last week’s Fed interest rate cut. The Fed has stated that it is re-calibrating its interest rate policy, which implies future interest rate cuts. This suggests future support for the economy and stocks.

China, the world’s second-largest economy, is now rolling out stimulus to support its economy and stock market. This is supporting deep cyclical stocks tied to global economic growth, with the Material and Industrial sectors now trading at all-time highs.

Given the positive economic growth that we continue to see and the fact that corporate profits and future estimates remain sturdy, we remain encouraged by the recent market action after the August selloff. Stay tuned for future updates as things develop.