Survey Surprises Support Equities

by: , Managing Director, Economist, and Portfolio Manager, New York Life Investment Management

U.S. equities have been on a quite the tear of late, and two big surprises in the economic data last week helped to further support a positive outlook.

First, surveys of business activity in the United States shot higher in September, with the ISM manufacturing and non-manufacturing both surpassing 13-year highs. And second, motor vehicle sales had their strongest monthly increase in this entire economic expansion.

The recent destruction caused by Hurricanes Harvey and Irma was expected to be a potential drag on economic activity in September. Surprisingly, however, activity remained strong.

Hurricane Harvey certainly contributed to the strong increase in auto sales, as the severe flooding stimulated replacement demand.

How Much of the Recent Strength is Driven by the Effects of the Storms?

It’s hard to say with certainty, but it’s clear that with up to 700,000 cars damaged, replacement demand will boost sales in the next several months. Hurricanes also disrupted supply chains and job markets, and hurt retailers and restaurants, so the impact on various economic stats is likely to be mixed. For example, consumer confidence surveys have shown a small setback, due to the spike in gas prices. Still, auto dealers did report a rise in September sales also beyond the hurricane-affected areas. And, new orders in manufacturing have been surging this year, even before the storms. Overall, recent indicators point to solid growth.

A Small Setback in Consumer Confidence

Source: Bloomberg, as of 9/30/17. Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.

No Doubt the U.S. Economy Is on Solid Footing

A weaker dollar and stronger growth overseas have helped support domestic growth. The elevated indicators we saw last week tend to correlate with higher equity prices and improved corporate profits. And certainly, they’re supportive of a December rate hike.

Higher Equity Prices and Improved Corporate Profits

Source: Bloomberg, as of 9/30/17. Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.

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The information contained herein is general in nature and is provided solely for educational and informational purposes. New York Life does not provide legal, accounting, or tax advice. You should obtain advice specific to your circumstances from your own legal, accounting, and tax advisors.

All investments are subject to market risk, including possible loss of principal. Investing in smaller companies involves special risks, including higher volatility and lower liquidity. There is no assurance that the investment objectives mentioned will be met. Diversification cannot assure a profit or protect against loss in a declining market.

The Bloomberg Consumer Confidence Index is an indicator designed to measure consumer confidence, which is defined as the degree of optimism on the state of the economy that consumers are expressing through their activities of savings and spending.

The ISM New Orders Index is based on surveys of more than 300 manufacturing firms by the Institute of Supply Management and monitors employment, production, inventories, new orders and supplier deliveries.

The information and opinions contained herein are for general information use only. MainStay Investments does not guarantee their accuracy or completeness, nor does MainStay Investments assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. There can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Past performance is no guarantee of future results.

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Poul Kristensen, CFA

Managing Director, Economist, and Portfolio Manager, New York Life Investment Management

Poul Kristensen, CFA is Managing Director, Economist, and Portfolio Manager with New York Life Investment Management’s Strategic Asset Allocation & Solutions (SAS) Group

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