Zacks Investment Management

In today’s Steady Investor, we look at what is going on in the markets and key takeaways for investors to consider, such as:

• Weak manufacturing numbers point to continued weakness in the sector
• The tug-of-war between the bullish outlook and the bearish one
• U.S. stocks finish Q3 in positive territory
• And more…

Read on to get the details!

Weakness in U.S. Manufacturing Spurs Recession Chatter – On Tuesday, the Institute for Supply Management (ISM) released U.S. manufacturing numbers that pointed to continued weakness in the sector. The U.S. manufacturing PMI came in at 47.8 in September, marking the second consecutive month of contraction and the weakest reading for the index since 2009 (readings below 50 indicate contraction). The manufacturing recession is a global issue, with many pointing to the trade war as the likely culprit. Global manufacturing activity as measured by IHS Markit contracted in September, which marked the 5^th sub-50 reading in 5 months. A trend of slowing global economic growth has arguably contributed to the weakness in manufacturing, but it also underscores how interconnected the manufacturing sector is in terms of value/supply chains and trade. Very few complex products are assembled completely in a single country. Other macroeconomic data pointing to weakness – which contributed to market volatility early in the weak – was U.S. factory activity contracting for the second straight month (and hitting a 10-year low), and new export orders hitting their lowest levels since March 2009.¹

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The Tug-of-War Between Bulls and Bears

While manufacturing data adds to the case for a potential recession, there is still an ongoing tug of war between the bullish outlook and the bearish one.

• Bulls: On one hand, global economic growth continues to post gains, and the U.S. consumer keeps spending at a robust pace.
• Bears: But on the other, the trade war is hampering business investment, and manufacturing and industrial production numbers are weakening in just about every corner of the world.

Both views provide key takeaways for investors to consider. Take a deeper look at the case for the bulls versus the case for the bears with our Just-Released October Market Strategy Report.

If you have $500,000 or more to invest and want to learn more, click on the link below to get your free report today!

Download Our Just-Released October Market Strategy Report³

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Yes, But What About Services? Much of the concern this week centered around manufacturing weakness, but readers should note that manufacturing accounts for approximately 10% of the U.S. economy, whereas services account for approximately 70% of the total economy. So even as manufacturing slows and even contracts, the key data to note is what’s happening in the services sector, in our view. Looking to the ISM Non-Manufacturing (Services) survey, which was released on Thursday, we see that the services sector continued its expansion but at a slower pace than expected. The ISM Non-Manufacturing reading came in at 52.6, which signals growth, but was lower than the expected 55.3 reading. Even still, growth is growth.³

U.S. Stocks Finish the Quarter (Q3) in Positive Territory – despite all the noise lately, U.S. stocks as measured by the S&P 500 posted modest gains (+1.7%) for the quarter ending September 30. As of the end of Q3, U.S. stocks had posted their biggest year-to-date gains (+19%) in over 20 years. In our view, stocks have spent the better part of the year climbing the proverbial “wall of worry,” with fears about the trade war, inverted yield curve, and now manufacturing weakness driving the narrative that the U.S. economy is fast-tracking to recession. Stocks, at least to date, have been telling a somewhat different story. Low interest rates across the world and modest, but still positive, growth have helped keep money flowing into equities.⁴

America’s Shale Boom is Showing Signs of Topping Out – in the first half of 2018, U.S. oil production grew at a 7% rate. In the first six months of 2019, that growth number is down to less than 1%, according to the Energy Department. Some of the slowing production is attributed to “core operational issues,” such as wells that were drilled too close to each other and producing less than expected. But another reason cited for the slowdown was a plateau in the fracking technology that had in previous years driven sizable year-over-year growth in production. The U.S. production boom has helped alleviate global supply in times of shock (attack on Saudi Arabian facilities) or other supply disruptions, such as sanctions on Iran. If production falls going forward, there could be more vulnerabilities to total global supply, the glut of which has led to stable and relatively low prices.⁵  

Bull vs. Bear! Key takeaways for investors to consider – On January 22, 2018, the S&P 500 closed at 2,872. On September 27, 2019 – nearly two years later – the S&P 500 closed at 2,977. For readers keeping score out there, that marks a price gain of 3.66% over 20 months.⁶ Not exactly an inspiring rate of return.

There has been a tug-of-war going on between bulls and bears. On one hand, global

economic growth continues to post gains, and on the other, the trade war is hampering business investment, and manufacturing and industrial production numbers are weakening.

Both views provide key takeaways for investors to consider. Take a deeper look at the case for the bulls versus the case for the bears with our Just-Released October Market Strategy Report.⁷

If you have $500,000 or more to invest and want to learn more, click on the link below to get your free report today!

Disclosure