Economic Insights - April 2019

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So-far the stock market has traced out a classic V-shaped correction since its all-time high last September.  The equity market may not continue to march in a straight line from here to new all-time highs, but as we have emphasized month-after-month since March 2009, the positives still outweigh the negatives.
In March, when the S&P 500 hit key resistance levels that briought anxiety and uncertainty, all of the usual pessimists cautioned that the pullback could be 5 percent, 10 percent or even more.  The prevailing view was that “the rally had come too far, too fast.”  But, as we saw, the pull-back turned out to be just 1.7 percent.  At Business Briefings, we weren’t surprised because the price action had been strong, and it was being confirmed with solid breadth numbers.

It’s hard to say for sure what’s going to happen in the short-term, but it looks like we’ll see a continuation of the pattern we’ve watched play out over-and-over for years now: the stock market moves close to new highs, pundits cite all the reasons stocks can’t go higher, and then new market highs roll in.

What is easier to judge is what’s ahead for the broader economy.
Let’s start with the U.S.

If capital expenditures growth is about to slow, it was not apparent in the fourth quarter 2018 GDP report.  Real nonresidential fixed investment surged 6.7 percent year-over-year, its fastest pace in more than four years.  Nominal capital expenditures grew at a robust 8.6 percent rate, led by a 12.6 percent jump in research & development and a 12.3 percent jump in software spending.  The sustainability of capital expenditures momentum may be the most important factor impacting growth in 2019 and beyond.

Factory orders rose 0.1 percent in January after December’s 0.1 percent gain.  Durable goods orders were revised to a 0.3 percent gain versus the 0.4 percent increase in the “Advance report.”  Transportation orders increased another 1.2 percent after December’s 3.2 percent jump.

The Philly Fed index bounced 17.8 points to 13.7 in March; that was much stronger than expected, after falling a surprising 21.1 points to -4.1 in February.  The 37.8 high for the current business cycle was hit in...

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