Stock Market’s Optimism Vs. Worrisome Economic Data

Judging by the US stock market, the economic outlook is optimistic in no trivial degree. The S&P 500 Index rose for a fifth straight day on Monday (Nov. 18), ticking up to another record high. Taking a cue from the party atmosphere on Wall Street, Goldman Sachs’ chief equity strategist expects the sluggish US economy will improve in 2020.

“The equity market is anticipating an acceleration in US economic growth during the coming months,” predicts David Kostin in a research note on Friday. He explained that “our economists believe that tariffs have peaked and that the drag on US GDP attributable to the US-China trade war is now abating. Their base case is that tariff levels on imports from China remain flat in 2020.”

The future may look sunny by some accounts, but the positive spin contrasts with a gloomy rear-view mirror. The Philly Fed’s ADS Index, a real-time business-cycle benchmark, fell sharply in Friday’s revision (thanks to weak industrial production data for October), settling at just above a level that’s considered a recession signal. The current -0.68 print for ADS is modestly above the -0.80 threshold that a San Francisco Fed research paper identified as a signal that a US recession has started. We’ve been here before in recent years and a rebound in growth pulled the economy back from the brink. Is this time different? Unclear, but we’ll know the answer soon.

Meantime, a fresh set of GDP nowcasts for the fourth quarter from the Atlanta and New York Fed banks paint a worrisome economic profile. On Friday (Nov. 15), the Atlanta Fed’s GDPNow model downgraded its real-time growth estimate to a weak 0.3% — a dramatic slowdown from the 1.9% increase in Q3. The New York Fed’s nowcast isn’t much better at a 0.4% gain (Nov. 15).

To be fair, other nowcasting models offer a more encouraging profile… sort of.’s latest Q4 estimate is a relatively upbeat 1.1% (Nov. 15). But the model’s weekly revisions have been falling since late-September and so even here there’s plenty of room for caution.

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