Thursday, May 30, 2019

There Are Some Positive Data Points

It seems much of the news being reported on the market and the economy lately is falling in the negative category. With both the S&P 500 Index and the Dow Jones Industrial Average Index down a little over 5% in the month of May and with only one trading day remaining, highlighting the negative news might be somewhat attributable to confirmation bias. Nonetheless all the news is not negative.

To highlight some positives, one can start by reading Scott Grannis' recent post on the bullish truck tonnage data. An increasing trend in truck tonnage hauled tends to be associated with strengthening economic activity and in turn favorable equity returns. Below is one chart he includes in his recent post.

The Baltic Dry Index (BDI) is another indicator that rises as demand for commodity inputs increase due to increasing economic activity. In earlier posts I have noted the BDI is a benchmark for the price of shipping dry commodities by sea. The Baltic Exchange in London obtains the price for shipping product on three different ocean going ship sizes. Because the commodities being shipped tend to be inputs into manufacturing products, the BDI can serve as a leading economic indicator. As the below chart shows, the index (red line) has been on the rise since early February. If one believes the BDI is a leading indicator, then the continued trend higher would be supportive of better global economic activity looking ahead.

Retail sales is another area where the data has been mixed, but news reports focus on the negative aspects. In mid-May the Census Bureau reported retail sales ex autos increased at a .1% month over month rate. This missed consensus expectations of a .7% increase. On a year over year basis though, retail sales were up 3.1% and a similar increase for retail sales ex autos as seen in the below chart. This is down from the 4% pace in early 2018, but at a similar level as the 2015/2016 time period, another non-recessionary economic slow period. Also shown in the chart below is a strong increase in non store retail sales growth, i.e., a 9% increase. Supporting this sales growth is a consumer expressing a high level of confidence with the Conference Board's Consumer Confidence Index reported at 134.1, a near record high.

In contrast to the government reported retail sales data just noted above, Johnson's Redbook retail sales data reported earlier this week was a favorable 5.7% year over year growth rate and remains at a high level.

And finally, just touching on investor sentiment, bullish sentiment as reported by the American Association of Individual Investors remains at a low 24.8%. This is nearing an extreme and as a contrarian indicator suggests investors are skeptical about stock returns over the next six months or so. Prior low bullishness readings have occurred near market bottoms.

Certainly there are data points that are pointing to an economy that has maybe shifted into a lower gear, but it does not seem to be pointing to a recession in my view. Importantly, all of  the economic and company data is not unfavorable and one must look not only at the negative data points but the positive ones as well.

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