Last week, the S&P500 inched up about 0.6%. Volume was light, and volatility eased off–the S&P500 VIX dropped back to the mid-12 level.
Several key economic reports were released last week. Retail sales, both headline and core, beat their respective estimates. The Empire State manufacturing survey came in ahead of consensus estimates. So did industrial production and leading indicators. As usual, there’s always a set of disappointing numbers. The housing market index missed….as did housing starts. The Philly Fed business outlook survey missed. Consumer sentiment also missed.
The Fed’s balance sheet endured one of its largest reductions since quantitative tightening began in October 2017; it shrank by over $29 billion last week alone, bring the total balance sheet reduction to over $231 billion.
And yet US stock markets are still holding up well. Sure they’re off from their all-time highs, highs reached in January this year. This is especially impressive given the fact that many major stock markets around the world—both from developed markets and emerging markets—have been suffering this year. China’s stock market for example has entered an official bear market. The German stock market (the DAX) is well off its highs. The Russian stock market is just about in a bear market. And Japan is also well of its highs.
In part, this is happening because US economic growth is still performing relative well, especially on a year-over-year basis. When most other major economies of the world are starting to slow down notably, US economic performance is holding up…..and this has a lot to do with the late-cycle fiscal stimulus provided by the Trump administration.
And so until US economic activity shows some more serious signs of slowing down—and this can be assessed on a monthly basis—there’s a good chance that US equity markets will continue to hold up relatively well when compared to other equity markets around the world.
Not coincidentally, our Simple Rule is capturing this US market strength and is still giving a signal to stay long US stock market indices.