Ahh, 2% Away From an All-Time High?

By David B. Armstrong, CFA | Nov 10, 2015 | Weekly Market Commentary

First and foremost, Happy 240^th Birthday to the United States Marine Corps.  As I come up on my 26^th annual lap in the Corps (I’m still in the reserves until spring of 2017), I’ve got to say that when our birthday rolls around, I’m a little nostalgic.  I love all the emails that go around and the old pictures from field operations that get posted on Facebook.  Happy Birthday Marines – we have the best uniforms and the best birthday celebrations.  Raise one or ten tonight… I can assure you I will. If you know a Marine, be sure to tell them Happy Birthday. They will love that you know about today and how special it is to us.
That’s me enjoying some fine Tennessee moonshine at the Birthday Ball in Chattanooga, TN a few years back as the Commanding Officer of Battery M, 3/14.  It was such good moonshine that…well…never mind.

The S&P 500 index posted its sixth straight week of gains last Friday.  Not bad for a market that had everyone screaming bloody murder in August.  Below is a Bespoke chart highlighting the last six months.

Last week, the U.S. Bureau of Labor Statistics reported nonfarm payrolls.  It turns out they grew by 271,000 in October.  That was WAY above the consensus forecast of 190,000.  August and September reported 153,000 and 137,000 respectively, so October kind of smoked those too.

We love the revival in job growth and it confirms our assertion that the economy is expanding at a modest pace, despite all of the troubles we’re witnessing (ahem, getting beaten over the head by CNBC) in the global economy. However, remember that U.S. exports account for just 13% of total U.S. economic output, so even though China has a high global economic profile, U.S. exports to China account for less than 1% of U.S. output. We have written about this before. Go read it again and tell all your friends about it too.

So What’s the Point?

Well the point is that to us here in the U.S., it’s really insignificant and addresses why China’s troubles aren’t washing up anywhere else on our shores than the set of CNBC.

Manufacturing jobs are also worth taking a look at.  Now I’ll warn you, if you or a loved one is in a manufacturing job, this will not be good news. However, from an economic perspective, it’s important to consider what is going on.

For starters, the number of manufacturing jobs created fell from 215,000 in 2014 to just 16,000 in the first ten months of October. However, manufacturing is no longer a substantial component to the overall U.S. GDP.  Manufacturing jobs now only account for 9% of total U.S. employment.

This is highlighted in the comparison between the ISM Manufacturing and ISM Services Index seen in the chart below (curtesy of Charles Sherry).  These indices use “50” as the separating point between expansion and contraction.  Look at the separation between the blue (services) and the red (manufacturing) lines.

While manufacturing is suffering (blame oil, gas and mining along with reduced exports/strong U.S dollar), it has not yet impacted the service sector. Well at least not according the ISM’s Non-Manufacturing (services) Index. On that note, did you know that three of the last four readings for the service sector have been the strongest of the economic expansion?

What the Hell is Going on with Small Caps!?!

We like Small Caps and still do.  True, our ETF portfolio has been impacted over the past several months by this overweight, but we have not given up on them and we believe that we will end up being rewarded by our patience.  Just this last week the Russell 2000 (a Small Cap benchmark index) was up almost 3% versus the S&P 500 which was up less than 1%.  These two Bespoke charts show us that things are improving in the Small Cap space.

Vehicle Sales – Specifically Ford F150 Pickup Trucks

We have written in the past about Ford F150 sales.  The theory is that most people who buy F150s buy them for business utility, BUT, they are a popular consumer vehicle too.  So when sales are going up, it is a good economic sign.  Sales of F150s are at a nine-year high (meaning 2006 was the last time sales were above this level).  See below thanks to, who else, Bespoke.  It compares year-over-year through October.

Finally – Thanks for All the Nice Emails on the Victory Lap

I was warmed by all the emails from everyone on the final portion of last week’s blog.  It can be found here.  I was also reminded of this gem by someone who has always remembered my older missives.  Thanks, L.R.  I appreciate it.

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