Schwab malignant fibrous histiocytoma histology market perspective are we there yet charles schwab

After a near-two-month lull on the trade news front, a surge in investor optimism, and reduced fears of a near-term recession, U.S. stocks remain fairly elevated but are off their all-time highs. Trade tensions between the United States and China briefly resurfaced malignant fibrous histiocytoma histology after recent reports that a “phase one” deal may not happen by year-end, and no decision has been made to delay or roll malignant fibrous histiocytoma histology back the December 15 tariffs. Accompanied by November’s weaker U.S. manufacturing and construction data, renewed trade uncertainty helped stoke fears that an uptick in malignant fibrous histiocytoma histology domestic economic growth may not be as imminent as many malignant fibrous histiocytoma histology had hoped. The initial rally to new highs for U.S. stocks was led by cyclical sectors, but some defensive sectors have since taken back the lead; suggesting that investors are not fully convinced of a near-term economic rebound.

Aside from the ongoing tug-of-war between cyclical and defensive sector leadership, small-cap stocks have failed to meaningfully break out and overtake malignant fibrous histiocytoma histology their large-cap peers; and international indexes have not confirmed the new highs seen malignant fibrous histiocytoma histology in the United States. Nonetheless, U.S. stocks have mostly ignored mediocre economic data and weak earnings malignant fibrous histiocytoma histology growth; focusing instead on trade optimism. In turn, some measures of valuation have climbed quite markedly; and we may be approaching a point when earnings growth malignant fibrous histiocytoma histology will have to do more of the market’s heavy lifting. [Read how valuation is as much a sentiment indicator as malignant fibrous histiocytoma histology it is a fundamental indicator in Any Weather: Valuations Say Stocks are Cheap and Expensive]. Growing global

The aforementioned weakness in U.S. manufacturing reinforces the narrative of the still-firm dividing line between the manufacturing and services sectors. November’s Institute for Supply Management (ISM) Manufacturing Index missed consensus estimates and fell to 48.1; while the Non-Manufacturing Index ticked down to 53.9. Though the latter also missed estimates, the overall level remains above 50, which separates expansion from contraction and suggests that services remains malignant fibrous histiocytoma histology relatively strong. Given the still-healthy consumer and gradual fading of trade tensions, investors had hoped for a pickup in activity synonymous with malignant fibrous histiocytoma histology the recent improvement in global manufacturing data. As you can see in the chart below, the global Purchasing Managers’ Index (PMI) has continued to rebound on a year-over-year basis; thus diverging from the U.S. manufacturing and services measures. By no means does this suggest the entire globe has malignant fibrous histiocytoma histology shifted into growth mode, but data of late has trended favorably.

Some pundits and investors have dismissed still-soft manufacturing, pointing to its increasingly-smaller share of the total U.S. economy. Yet, the reality is that it is more cyclical in nature—with a higher correlation to corporate profits—and tends to lead the rest of the economy. In other words, manufacturing punches above its weight. Absent a meaningful rebound in soft or survey-based measures (such as the ISM indexes) and hard data (such as industrial production and business investment), manufacturing’s malaise may start to spill over into services, with employment being the main transmission mechanism. Fortunately, the labor market has remained firm. November’s strong jobs report from the Bureau of Labor Statistics malignant fibrous histiocytoma histology (BLS) showed an increase of 266k nonfarm payrolls, which beat the consensus estimate of 180k. Average hourly earnings ticked down to 0.2% month-over-month, but the year-over-year figure moved up to 3.1% after October’s upward revision to 3.2%; and the unemployment rate edged down to 3.5%. Job growth at the sector level was broad-based, with manufacturing leading the gains—perhaps unsurprising, considering the GM strike has ended. For now, on the employment front, we can say so far so good. Just another mini-slowdown?

Among the myriad economic data that hit the press around malignant fibrous histiocytoma histology the Thanksgiving holiday were the revisions for third quarter gross malignant fibrous histiocytoma histology domestic product (GDP) growth. Original estimates from the Bureau of Economic Analysis (BEA) showed a 1.9% annualized growth rate, which was revised upwards to 2.1%. Strength in revisions wasn’t broad-based, though, as inventories accounted for nearly the entire increase; while imports and state & local government spending were revised downwards. Though revisions surprised to the upside, growth expectations for the fourth quarter suggest further slowing in malignant fibrous histiocytoma histology the economy—as the Atlanta Fed’s latest GDPNow forecast came in at 1.5% as of December 5, 2019.

While the LEI’s weakness suggests we are later in the economic cycle, we haven’t yet reached the average level that has signaled past malignant fibrous histiocytoma histology recessions. In other words, the LEI is not in the “danger zone,” as denoted by the orange dotted line. The jury is still out as to whether this is malignant fibrous histiocytoma histology just another mini-slowdown (similar to 2011 and 2016) or something worse, so data in the next few months will give a malignant fibrous histiocytoma histology more certain tell about growth prospects. Our view has been—and continues to be—that trade is the biggest needle-mover with regards to how much longer this cycle can malignant fibrous histiocytoma histology last. Should uncertainty persist and a deal remain elusive, corporate confidence will likely remain under pressure and further strain malignant fibrous histiocytoma histology investment; potentially affecting the consumer and labor market. Any détente or “skinny” deal would likely, at best, herald a stabilization in growth. Trade has been a tough trade

Up until last week, investors had grown increasingly optimistic and complacent that a “phase one” U.S.-China trade deal was near completion and would be signed malignant fibrous histiocytoma histology by year-end. No news had been the best news, as the silence from both Washington and Beijing for most malignant fibrous histiocytoma histology of October and November helped push the market to new malignant fibrous histiocytoma histology highs. Yet, stocks resumed choppy trading after renewed hesitation that a deal malignant fibrous histiocytoma histology was to be completed this year—bringing uncertainty back into the light and confirming that the malignant fibrous histiocytoma histology market is still largely beholden to trade news; as you can see in the chart below.

While trade optimism has at times provided a meaningful lift malignant fibrous histiocytoma histology to stock prices, the bite has clearly been equally as painful. In fact, as per our own findings, the market has moved (in points traveled terms) nearly twofold on days when trade news is front and malignant fibrous histiocytoma histology center, compared to days when there are no major headlines. Thus, as we have warned in prior reports, trading around short-term trade news has proven to be quite a treacherous malignant fibrous histiocytoma histology task.

As the trade war’s impact on the market has been profound, such has been the case for the broader economy. Notwithstanding the material effects on GDP growth courtesy of strained malignant fibrous histiocytoma histology business investment and a beleaguered manufacturing sector; corporate earnings, business confidence, and future planned capital expenditures have taken substantial blows. Tariffs have been a considerable drag on U.S. companies, forcing C-suites to either compress their profit margins and/or pass higher costs onto customers—an issue that will be further amplified should the December malignant fibrous histiocytoma histology 15 tariffs (which directly hit consumer goods) kick in. China has experienced similar setbacks and, while there is a serious debate as to who is malignant fibrous histiocytoma histology “winning” the trade war, weak manufacturing and economic data in both countries prove that malignant fibrous histiocytoma histology there are no winners.

Further escalation in trade tensions and/or the implementation of the December 15 tariffs could hurt malignant fibrous histiocytoma histology the stock market and hike prices on consumer goods—thus leading to a pullback in spending and weaker confidence. You can see that a significant decline in confidence has malignant fibrous histiocytoma histology historically not bode well for the economy; and since the consumer has been among the few bright malignant fibrous histiocytoma histology spots, any meaningful deterioration in confidence might shorten the runway between malignant fibrous histiocytoma histology now and the next recession. Taking inventory of the labor market

It seems to be a mystery: why has the world’s labor market been so strong in the face of malignant fibrous histiocytoma histology weakening global growth and a manufacturing recession? From Canada to China, employment has been consistently resilient across major economies. Remarkably, strength in the labor market has persisted even where the malignant fibrous histiocytoma histology global economy is weakest—such as Germany, where employment is at an all-time high in the manufacturing sector, as you can see below. This labor market resilience has supported consumer spending and has malignant fibrous histiocytoma histology kept the global economy from sliding into a broad recession. But why has it been so strong and how long malignant fibrous histiocytoma histology might it last?

Historically, when demand softens, employers often reduce output through job cuts—especially in manufacturing industries where excess inventories are costly to malignant fibrous histiocytoma histology maintain and weigh on pricing. Yet, nearly two years into this slowdown, there are few signs companies are cutting payrolls. This cycle may be different, as financing the production of unsold inventory in a world malignant fibrous histiocytoma histology of negative interest rates may be more attractive than laying malignant fibrous histiocytoma histology off workers. Inventory financing costs in recent years have been low by malignant fibrous histiocytoma histology historical standards and may even be at all-time lows. With negative real interest rates, businesses can borrow to finance inventory at a lower rate malignant fibrous histiocytoma histology than the pace at which that inventory is inflating in malignant fibrous histiocytoma histology value—resulting in a positive impact on profits. This is unique to this business cycle and could explain malignant fibrous histiocytoma histology why the labor market has remained strong nearly two years malignant fibrous histiocytoma histology after sales began to weaken.

But there is a limit. Businesses can’t recognize the gain until the inventory is sold. Without a trade deal, the heightened tensions that have contributed to the slowdown in malignant fibrous histiocytoma histology demand may not ease. A failed “phase one” U.S.-China deal by December 15—when the next tranche of tariffs goes into effect—could force businesses to finally begin shedding payrolls, undermining the key support for the global economy. So what?

U.S. stocks continue to trade near their all-time highs but recent hiccups in trade talks have re-emphasized that a deal remains elusive, decisively unpredictable, and incomplete. Key components of the first phase have yet to be malignant fibrous histiocytoma histology put in writing and major structural issues—such as intellectual property theft and forced technology transfers—will remain unaddressed for the foreseeable future, confirming that little-to-no material progress has been made. Persistent uncertainty has proven to be a significant strain on malignant fibrous histiocytoma histology business confidence and spending, especially in the United States. Yet, the rest of the globe is showing nascent signs of malignant fibrous histiocytoma histology emerging from the growth slump—bucking the usual trend of following the lead of the malignant fibrous histiocytoma histology United States. Considering sluggish domestic growth expectations and a trade scenario that malignant fibrous histiocytoma histology can tip in either direction, we maintain our neutral stance on U.S. equities (with a bias towards large caps relative to small caps), as well as developed and emerging market equities. We continue to encourage investors to use volatility to rebalance malignant fibrous histiocytoma histology back to strategic long-term allocations.

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