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A Bird's Eye View Blog

Fireside Charts: U.S. Manufacturing in Contraction for First Time in Nearly a Decade, But Markets Show Some Signs of Resilience

By:BCM Investment Team | Date:Aug26, 2019 | Category: Equity, Economics, Market Highlights, Fireside Charts

Amidst all of this summer's volatility and U.S. manufacturing entering contraction, we're seeing resilience in some unexpected arenas. Though it's suffered some losses in recent months and fund flows have been on a steady decline, the S&P 500 is still up nearly 40% over the past three years and we're not yet seeing a sharp rise in investors looking to short. And for all the talk about the housing crisis, Real Estate is the best performing sector on a trailing one-year basis and new home sales appear to be headed toward achieving their best year since 2007! Bond volatility has spiked, with correlation between bond and equity volatility nearing an all time high. Yet, yields on junk bonds remain stable. The U.S. Economic Uncertainty Index has surged this summer, which is not very surprising, but for now we're taking heart from these indicators of investor and consumer confidence!

1. We've been closely following the state of U.S. Manufacturing as the monthly reports have been on a steady decline since early spring. On Thursday, it officially fell below 50 and entered contraction for the first time in nearly a decade.

 

 Source: Statista, as of 8/26/19

 

 

2. While Durable Goods Orders Excluding Transports fell slightly in July but remains near the highs for this economic expansion.

 

Source: FRED, as of 8/26/19

 

 

3. Despite recent market volatility and the clearly bearish bets of fixed income investors of late, US equity investors are not yet heavily betting against the S&P 500.

 

Source: FactSet, Goldman Sachs, as of 8/26/19

 

 

4. Perhaps because the S&P 500 is still up ~40% over the past three years.

 

Source: Ritholtz Wealth Management, as of 8/26/19

 

 

5. That said, since volatility picked up in late 2018, U.S. Equity Fund Flows have been in a downward trend.

 

Source: Topdown Charts, as of 8/26/19

 

 

6. 2008 caused a massive number of distressed (forced) sellers in the housing market which has likely stunted new home sales in the recovery since.

 

Source: Calculated Risk Blog, as of 8/26/19

 

 

7. However, 2019 new home sales are on target for their best year since 2007 so far.

 

Source: Calculated Risk Blog, as of 8/26/19

 

 

8. And Real Estate is the best performing sector on a trailing 1-year basis.

 

 Source: The Chart Store, as of 8/25/19

 

 

9. "Bonds have outperformed stocks by 8.95% during the last 20 trading days. This is close to the weakest performance for stocks relative to bonds in the past two years."

 

Source: CNN, as of 8/26/19

 

 

10. While correlation between implied volatility in the stock and bond markets is shooting toward an all-time high.

 

Source: Arbor, as of 8/26/19

 

 

11. But junk bond yields are stable and haven't declined with treasuries.

 

 Source: The Chart Store, as of 8/23/19

 

 

12. While—unsurprisingly—uncertainty around U.S. economic policy has surged.

 

Source: Bloomberg, as of 8/26/19

 

 

13. There are an amazing number of cell phones across the planet!

 

 Source: Bloomberg, as of 8/26/19

 

 

The G7 wraps up in Biarritz, France today and we're sure to see some economic news emerging in the next few days. If you have a friend or colleague who could benefit from BCM's market insights, please click below to share the link to this blog!

 

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Disclosure: The charts and info-graphics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are a recommendation to take any action. Individual securities mentioned may be held in client accounts.