Economic Data Reports Send U.S. Stocks To Sustained Highs
Even with recent declines seen during the summer of 2019, the S&P 500 has managed to post a series of long-term higher highs that have defined an uptrend for the benchmark.
Recent jobs reports in the U.S. have been critical in terms of the implications they hold for the future monetary policy actions at the Federal Reserve. Stock market valuations will continue to be influenced by interest rate policy changes that are made during the remainder of this year.
Consensus estimates suggest the U.S. economy added an average of roughly 150K jobs for each month of this year (down slightly from the 160K recorded in prior averages). The national unemployment rate in the U.S. is expected to hold at lower levels, which is a key indicator of economic strength.
On balance, the U.S. is still posting some very strong economic numbers and any positive surprises in the next few jobs reports will likely push the average consensus in analyst surveys closer to the long-term averages. Current expectations for future rate hikes this calendar year remain questionable. However, all of these data figures will help to clarify some of these issues in the months ahead.
It will also be important to continue watching for developments in the U.S. ISM Services report, which has largely supported the bullish angle over the last year. With the readings that were posted for the last few months. This recent decline from the previous month’s readings may appear ominous but we are still coming off of figures that represent a 12-year high.
As a result, some declines were reasonably expected in the analyst surveys. Markets have still managed to trade higher after these prior releases on the argument that this long-term strength does bode well for the upcoming nonfarm payrolls figures coming out in the months ahead.
The services sector represents 70% of the US economy and these reports cover businesses like retailers, hospitals, and restaurants. Numbers above 50 signal expansion in the economy, and readings above 55 are considered “exceptional.” We are firmly above those levels, and this helps tip the odds in favor of a bullish data surprise for payrolls reports that follow.
The ISM indexes for new orders have recently seen gains of 64.8 (from 62.7 previously, marking another long-term high). All told, 16 of 17 of the industries that are tracked in the report are showing strong evidence of expansion. This is highly encouraging for the underlying trend in the U.S. economy, as it shows companies are actually having difficulties with skilled labor shortages.
Supply costs have also been seen rising in the recent reports and this brings us back to the potential market disruptions that could be caused by the implementation of a trade war. As labor costs also move higher, we are looking at a scenario that is essentially ripe for upside inflationary pressure in the U.S. economy.