There are occasions after I write a weblog article and I remind readers the inventory market and the economic system will not be the identical. By that, I imply the inventory market generally strikes counter to what one may count on primarily based on financial information releases. Typically instances this divergence happens because the inventory market is forward-looking and its motion anticipates higher or worsening financial situations whereas a lot of the financial information is reporting on the previous. At the moment, nonetheless, it appears the market and economic system are in sync to a sure diploma. Because the S&P 500 Index low on March 23, it has returned over 53% on a price-only foundation as of this previous Friday. Over the past 24 weeks, the S&P 500 Index has generated a optimistic return in 16 of them with Eight weeks being down. Following is a evaluation of some financial highlights which counsel many areas of the economic system are bettering in a ‘V-shaped’ method.
In reviewing the August ISM Purchasing Managers’ Indexes for Manufacturing and Services launched final week, each are in enlargement territory with readings above 50. As famous within the ISM report, this represents the fourth straight month of progress within the manufacturing section of the economic system. Moreover, the report notes, “demand and consumption proceed to drive enlargement progress.” That is additionally mirrored within the enhance within the new orders element, as seen within the second chart beneath. Sure, the Companies PMI ticked down barely, however stays at a agency 56.9 within the August report and up from the low 40s in April.
The Census Bureau’s newest report on retail gross sales is thru July and exhibits retail gross sales now surpasses the excessive reached in January, earlier than the virus-mandated shutdown. Retail gross sales are up $123.2 billion from the near-term low in April 2020. Clearly a ‘V-shaped’ restoration in retail gross sales.
This previous week the Johnson Redbook report on retail same-store gross sales famous a 4.6% Y-o-Y enhance. It is a markedly higher report than skilled throughout the shutdown and one other variable exhibiting a ‘V-shaped’ enchancment.
Huge ticket gadgets just like the sale of latest mild vehicles and automobiles are rebounding strongly too. Gentle truck gross sales for August had been reported at 11.6 million versus the 6.7 million stage in April. Previous to the recession, truck gross sales had been close to 13 million items.
One other huge ticket merchandise is the acquisition of a house. On a month-to-month foundation, the sale of latest properties is 130,000 items above the speed previous to the shutdown as seen beneath. The sturdy housing market has a optimistic multiplier influence on the general economic system because of the many different companies that profit from dwelling purchases.
The power in new dwelling gross sales can be exhibiting up in file NAHB Homebuilder Sentiment.
The prevailing dwelling sale information beneath is proven on an annual foundation and this too is above the pre-virus recession stage. Present dwelling gross sales may even be stronger had been it not for the low stage of stock in properties on the market.
One space of concern is the employment portion of the economic system. This space appears to be bettering at too sluggish of a tempo. Jobless claims are clearly down from their close to seven million recession peak, however 881,000 new claims stay too excessive.
Persevering with claims are too excessive as nicely and embrace the ‘Pandemic Unemployment Help’ class, this totals 29 million people receiving some kind of unemployment help.
I famous in a report a couple of week in the past that corporate earnings growth is predicted to renew. The beneath chart exhibits that the I/B/E/S information from Refinitive is projecting 12-month forwards earnings progress of 9.6%.
For calendar 12 months 2021 versus 2020, S&P 500 earnings are anticipated to extend 27.8%. The beneath desk exhibits this progress damaged down by quarter.
So the financial information is actually strengthening and that is being mirrored in company earnings expectations. If this enchancment continues, which I count on, all else being equal, this could draw extra unemployed people into the workforce. Anecdotally, I see extra job opening indicators as I’m out and about. Over the past 10 weeks, the S&P 500 Index has been up in eight of them. For all ten weeks, the market is up 13.22% so somewhat breather/consolidation is wholesome and never essentially an indication that the bull market run is coming to an finish.
Editor’s Word: The abstract bullets for this text had been chosen by In search of Alpha editors.