Market and Economic Commentary

Similar to last quarter, employment trends continue to show signs of peaking or rolling over.  Non-farm employment growth has moderated, and the number of industries hiring new workers may have peaked. Compensation growth looks to be slowing as well.

The consumer appears to be in good shape.  Retail sales, consumer confidence, and personal savings rates are all hovering near recent highs.  As long as the consumer keeps spending, the economy should hold up.

Manufacturing continues to weaken.  The trade war is having the biggest economic impact on this sector.  The combination of rising tariffs and a stronger dollar have depressed exports.  These trends, in turn, have weakened manufacturing output.

The 2 to 10-year stretch of the U.S. Treasury Yield Curve has inverted.  Over the past seven economic cycles, every recession was preceded by an inversion of the curve.  However, the market typically rallied after the initial inversion – and, not all inversions lead to recessions.  Interestingly, the present yield curve has not led to any signs of stress in the banking system.  Banks remain well capitalized and continue to make loans.

The endless discussions about recession and the resultant choppy stock market have made individual investors rather pessimistic.  The number of bulls has fallen to levels where market bottoms typically are formed.  Likewise, an increasing number of individual investors appear overly bearish.  Both of these are contrarian indicators.

Forward earnings estimates for the S&P 500 Index show +2.3% growth for 2019, but the outlook continues to drift lower on concerns of decelerating trade, slowing global macroeconomics, and general uncertainty.  With low growth seemingly inevitable, it puts the onus on companies to maintain their profit margins.

Download the full report in pdf here: IMVA Investment Review-October 2019