In The Know - December 2019
“Everyone has special talents, and it is our duty to find ours and use them well.” -Sir John Templeton
Market Condition: The current market is in a confirmed uptrend. The major indexes continue to trend higher with minor pullbacks and shakeouts along the way. The Russell 2000 small cap index which was lagging has now made a decisive breakout to the upside hitting new 52 week highs. Demand for shares continue to be the ongoing theme as widely held institutional stocks continue to perform well, stocks like Alphabet (GOOGL), Microsoft (MSFT), Apple (AAPL) and Facebook (FB) for example. A risk on mode is more evident as more risky small caps stocks (IWM) are on the move as are some of the more speculative Chinese and biotech stocks, the biotech ETF (XBI) hit a new 52 week high.
December has historically been a good month for the market. Since 1950 December has been the S&P 500’s best month, according to stock Trader’s Almanac, with most of the gains happening in the second half of the month.
The Economy: Economic numbers continue to be mostly bullish. Unemployment is near 50 year lows. Private sector wages and salaries are up 5.2 % from a year ago with wages growing faster for lowincome workers than high income workers. Corporate profits are growing with corporate margins staying high. M2 Money supply has accelerated to 9.2% in the past six months. Real GDP was revised to a 2.1% annual growth rate in Q3 beating the original and consensus estimates for 1.9% pace. New orders for durable goods rose in October showing an increase in business investment. ISM Nonmanufacturing index continued to show expansion in November coming in at 53.9 (over 50 signals expansion.)
Manufacturing surveys appear to be the one drag on the economy as the ISM Manufacturing index declined to 48.1 in November (numbers below 50 indicate contraction.) This was the third month that the index was below 50. One must keep in mind that this index is calculated through a survey of purchasing managers who are often swayed by sentiment rather than actual activity. No doubt the ongoing trade skirmish continues to weigh on their minds. So while manufacturing surveys remain shaky, the overall economic data points to more economic growth.
Summary: Since the start of the year our view on the markets has been optimistic. The Market trend continues with mostly solid economic data to support the trend. Furthermore, estimates for earnings growth for 2020 and 2021 remains bright, Ed Yardeni Research sees a 5.5% pickup in 2019 and 5.2% growth in 2020. With earnings and profits growing in key stocks we continue to expand upon and explore new ideas, as we still remain optimistic.