Is US Economic Growth Actually Slowing?

On Friday, February 1st reams of great economic reports were released that should make even the most bearish investors question their viewpoint on the economy. However, despite this, the reaction from markets, namely the S&P 500, was muted. However, we aren’t keen on discussing short-term movements on this website. We want to understand the intermediate and long term trajectory of the economy. We are explaining why stocks weren’t enthused in case anyone questions the great reports we will review by saying “if they were so great, how come stocks were flat?”

As you can see from the chart below, the NDR Sentiment Composite is at 66.67 which signals the market is exhibiting excessive optimism. 

When this index is above 62.5, the returns per year are -8.84% since 1994 and -2.07% since 2014. Furthermore, the CNN Fear and Greed index is at 61 out of 100 which signals greed.

One other point worth noting is some traders may view good economic news as bad news because the Fed could get more hawkish. On the other hand, low inflation indicates we could be entering a Goldilocks period for stocks as the Fed doesn’t need to raise rates and growth is solid. This point explains why the S&P 500 had its greatest January since 1987 and why stocks can have a solid rest of 2019.

Great Labor Market Report

The point of this article is to give an overview of all the great economic reports that came out on Friday. We will give more detail on the January labor market report in subsequent articles. For now, you need to know the headline number for job creation was significantly above estimates. As the chart below shows, 304,000 jobs were added which beat estimates for 158,000 jobs.

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