RALLY EXTENDED BY BETTER ECONOMIC DATA

Stocks opened higher today (Dow +250 pts; SPX +.8%). A host of sectors are up more than 1% in early trading: financials, energy, industrials, materials, and communications services. Only the interest rate sensitive defensives (utilities, real estate, consumer staples) are in the red. The reason: better economic data in both the US and China. Commodities are trading broadly higher. The Bloomberg Commodity Index is up .8% today and 6.5% so far this year. WTI crude oil is up 1.5% to trade at $61/barrel. That’s the highest level since early November 2018. Bond prices are mostly lower, except for junk bonds. The 10-year Treasury yield backed up sharply to 2.48%.

The US trade delegation is currently in China meeting with counterparts, attempting to move toward deal. Late last week, White House Economic Advisor Larry Kudlow noted “tremendous progress” thus far. But he stressed this isn’t “time dependent.” In other words, a trade deal could take weeks or months. The Trump Administration’s self-imposed deadline wasn’t actually a deadline.

New data show China’s manufacturing sector improved significantly in March. The government’s official Purchasing Managers Index (PMI) bounced back to 50.5 in March. Corroborating the rebound, a separate PMI gauge created by private research firms Caixin and IHS rebounded to 50.8 in March. These indexes measure business activity, and like any other PMI, 50.0 is the dividing line between expansion and contraction. This marks the first expansionary month since November 2018. It could be a sign that the world’s second-largest economy is stabilizing.

A similar US PMI published by the Institute of Supply Management (ISM) also improved unexpectedly in March. The Manufacturing PMI rose to 55.3 vs. 54.2 in the prior month. Looking into the report’s details, hiring activity and new orders from customers surged to very strong levels.

Unfortunately, US retail sales remained constrained in February, coming in below most economists’ forecasts. Retail sales fell .2% from January levels. However, the reason for that is a significant upward revision in January sales. We know that consumer spending took a hit from the government shutdown and the recent stock market correction. These are likely temporary factors distorting the longer term trend. On a year-over-year basis, retail sales rose 2.2% in February. That growth rate is at the low end of the 5-year range, but it’s still positive. And given that the US labor market remains very strong, I’m guessing most economists think this weakness is temporary.


*The foregoing content reflects the author's personal opinions which may not coincide with the opinions of the firm, and are subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Past performance is not a guarantee of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. All investing involves risk. Asset allocation and diversification does not ensure a profit or protect against a loss. Finally, please understand that–as with other social media–if you leave a comment, it will be made public.