| Economic data continues to underscore the increasing likelihood of a strong second half for 2017. The ISM Non-Mfg Index for August was encouraging. The top line reading was 55.3 versus the prior month’s reading of 53.9. New Orders (57.1), Inventories (53.5) and Business Activity all spoke very directly to continuing strength in the important reading. The PMI Services Index for August was a solid 56.0 versus July’s 54.7. Additionally, the report also provided encouraging data with a focus on inflation, strength of new orders, business confidence and employment. Productivity and Costs for Q2 non-farm Q/Q – SAAR was a solid 1.5%. Consensus was calling for 1.3%. The prior reading was 0.9%.
Now that Q2 earnings season has wound down, markets are increasingly more susceptible to forces that tend to be less directly connected to corporate results and guidance. Last week we saw more saber-rattling between North Korea and the United States and now with hurricane season upon us, we are witnessing the brutality of Mother Nature in Texas and Florida. Both of these themes have driven a degree of uncertainty into the market. Certainly, the North Korea narrative has ramifications far more significant – globally – but both have acted to fuel risk aversion and doubt as per the timeline for the Federal Reserve’s next move on rates. I think it’s very safe to say that the Fed stands pat on rates until at least December.
Of greater importance for investors is the upcoming anticipated Fed balance sheet unwinding.
In the case of Mother Nature, if recent history is any indication, these events actually have a way of significantly boosting economic activity in the areas effected though that activity is not necessarily ideal and certainly not welcome in a perfect world.
As I have articulated in recent notes, I expect further near term weakness in US equity markets. The global economy may, however, act to offer some support for US markets as we head further into the closing months of 2017. For the first time since the financial crisis the global economy is constructively synchronized. As I have previously pointed out, the stabilization of global energy prices in the form of petroleum, multiple global GDP revisions higher by several global organizations, improving economic growth and confidence in Europe and reacceleration of growth in China and Japan all are contributing to the constructive longer term outlook.
Flickr Photo: dolbinator1000 |
