In an effort to address any questions that may arise regarding the “Economy” dial, Capital Markets offers a reminder of what the dial represents and how the data behind the dial is calculated.
The economy dial represents the three month rate of change of the Philly Fed’s Coincident Index and how this rate of change compares to historical three month rates of change, going back to January 1979. In other words, how does the current three month growth rate of the index (representing the economy) compare to past growth rates.
The current 100% reading means that the index (and, thus the economy) has never grown as fast as it has in the past three months. This is not surprising as we recently experienced the index’s largest three month drop during the shutdown. Historically, this data has been very slow moving as it represents the economy which also has historically been very slow moving. Much like a large ocean freighter, the economy rarely turns on a dime. The current environment is, of course, very unique.
Economy
Valuation
Sentiment
U.S. Economy—Nonfarm payrolls increased by 638,000 jobs in October while the unemployment rate fell to 6.9%.
- We expect 2020 real U.S. GDP to contract about 4.3%. The NBER has not officially dated the end of the pandemic recession.
- Based on the Federal Reserve Bank of Philadelphia’s U.S. Coincident Index, our gauge of U.S. economic activity (above left) registers a September 2020 reading at the 99th percentile.
- Recent developments:
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The Conference Board U.S. Leading Economic Index increased 0.7% in October. The Board’s report noted that “The leading index
has been decelerating in recent months, which suggests growth will moderate significantly in the final months of 2020.”
Capital Markets—Breadth has improved. On October 18, 90% of S&P 500 stocks traded above their 200-DMA.
- Valuation:
- Based on the S&P 500 trailing 12-month price-to-earnings ratio, our gauge of U.S. equity valuation (above center) registers a current reading in the 3rd percentile. Stock valuations are significantly higher than a year ago.
- Sentiment:
- Based on the National Association of Active Investment Manager’s Exposure Index, a contrarian indicator, our gauge of U.S. stock market sentiment (above right) registers a November 18, 2020 reading in the 1st percentile.
This material is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer, or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed to be reliable, are not necessarily all-inclusive, and are not guaranteed as to accuracy. Reliance upon information in this material is at the sole discretion of the reader.