Strong Year Ahead Despite Overbought Markets

April 04, 2019

The markets are still overbought, even with the large sell off and rebound in December, and a pull is warranted to reset the run up. If history is any indication, we expect the market to have quite a strong year. Pull backs are normal and inevitable.

02-06-2019 SPY


Manufacturing labor productivity increased at a 1.3% annual rate in Q4, up from 1.1% in the previous quarter. Output rose at a 2.3% annual rate, while hours worked increased at a 1.0% rate, and both were led by gains in durable goods manufacturing. On a y/y basis, manufacturing productivity remained subdued, up only 0.7%, well below the historical mean of 2.6% y/y. The average annual gain in 2018 was only 0.6%, down from 0.7% in the previous year. It has been below 1.0% for the past eight years. Nonfarm labor productivity for Q4, as well as nonfarm and manufacturing unit labor costs for Q4, were delayed for a future date due to the recent government shutdown.

  • The trade deficit narrowed by $6.4 billion in November to $49.3 billion, a five-month low. The consensus was for a smaller $1.2 billion decline to $54.3 billion.
  • Imports slumped 2.9%, the most since March 2016, led by consumer goods (due to tariffs) and industrial supplies and materials (mostly petroleum).
  • Exports fell a smaller 0.6%, but were down in five of the past six months, reflecting the stronger U.S. dollar and weaker global demand. The smaller trade deficit lifted the estimated contribution of net exports to Q4 real GDP growth of -0.2 percentage points from -0.5 points before, according to the GDP Now Model. This Model is currently tracking at a 2.7% annual rate of real GDP growth for Q4, up from an estimated 2.5% annual rate before.

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