Economic Insights - February 2020

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What is the outlook for the economy?  We’ll give you the insights and analysis you need to make better decisions, so you can make better profits.

As we forecasted, the economy is already responding to the de-escalation of the trade war.  For the first time since July, the ISM Manufacturing Index for January was in growth mode, back above 50.  There was also a string of other bullish data on the economy, along with corporate earnings that were not as bad as some analysts predicted.  Instead of severe corrections and declines, smart investors kept their equity positions in 2019 and that mindset has carried over into the first part of 2020.

We are constantly reminded that there are still a lot of problems going on all around us.  This includes what happens with the coronavirus as well as the ongoing tensions between the United States, Iran, and North Korea.  And we never know what other sorts of black swan events may arise.  But, while we “don’t know what we don’t know,” what we do know is that lots of factors are moving in a favorable direction.

As we’ve seen since the breakout in the S&P back in October 2019, the stock market just keeps climbing a “wall of worry.”  New highs aren’t celebrated, they are questioned.  Most experts don’t view the past five months as anything special.  However, the truth is that the underlying strength that accompanied this latest wave in the market has been very special.

The global stock market rally occurred based on a bottoming in a global manufacturing recession and a change to a more positive outlook.  In part, this was because investors could see some relief ahead in the U.S.-China tariff tensions.  People began to see that an apocalyptic tariff war was not going to happen.  As predicted over a year ago in Business Briefings, and in our sister-publication Trends, the trade will not become a genuine crisis prior to 2021, if then.  Both Xi and Trump have too much to lose from an escalation in 2020; Trump has now put off any pain until after the election, while Xi has bought himself time to make adjustments that will strengthen China’s position and let him deal with other crises.

The first two weeks of February were just more of the same;...

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