Resilience and Resolve

Markets have undoubtedly challenged investors’ patience recently—but in our view, such markets require resolve, particularly considering extant underlying economic resilience.

May was a rocky month for investors, and Friday, June’s opening day continued the trend—global markets dropping sharply. Investors were seemingly rattled by a handful of data points that weren’t so stellar:

• The US added only 69,000 jobs in May—fewer than the 150,000 forecast. The unemployment rate ticked up to 8.2%.
• US manufacturing expanded, but at a slower pace than expected.
• China manufacturing also slowed—it’s still in expansionary territory, but just barely.
• Eurozone unemployment held steady in April at 11% and ticked up slightly (from 10.2% to 10.3%) in the overall EU. Underlying that, Italy and France both ticked up some.
• UK manufacturing registered fairly sharp contraction, falling to 45.9 from 50.2 last month (readings above 50 indicating overall expansion).

To be sure, not the best data we’ve seen reported in a while, and markets seemingly overall agreed.

But amid fairly widespread prognosticationsof global economic deterioration, some more encouraging numbers were largely overlooked:

• While overall eurozone unemployment remains relatively high, German unemployment again ticked lower—to 5.4%.
• Japanese capital expenditures rose 3.3% year over year in Q1, corporate profits rose 9.3% from last year and sales increased 0.6%.
• US consumer spending again rose 0.3% in April, while US incomes rose 0.2% in the month.
• US construction spending increased 0.3% in April, in line with analysts’ expectations.
• Similarly, May US auto and same-store sales, among other data, weren’t weak.

Taken together, the data arguably paint a rather more mixed picture than many in the media suggested.

Which seemingly makes the case for taking in the global picture’s entirety—not just the good or bad slices—before making a forward-looking assessment of markets’ or economies’ likely paths. For example, reading broadly Friday, you might have uncovered a less dour outlook on the US unemployment report, like this one—highlighting the importance of considering multiple outlooks on the same data point. Not everyone will have the same view, and it’s crucial for investors to check their biases at the door (to the extent they’re able) and attempt to discern what’s news from what’s actually noise.

By no means are we dismissing the less-than-stellar data; nor are we recommending which news sources to read and which to ignore—on the contrary, the editorial staff at MarketMinder reads near-anything and everything to get a feel for the overall media pulse. Which we believe is a critical approach to dissecting economic news—especially when it comes to sentiment, a notoriously fickle indicator.

Ultimately, there’s little in recent data to suggest much has fundamentally changed from what was already known: US unemployment is still elevated and job growth isn’t fast, but it is, in fact, growth; US GDP growth could be faster but isn’t contracting; the eurozone has pockets of weakness and strength, balancing out to overall flattish growth or, at times, slight contraction. The reality is, while Friday may have written a new bar or two, the song overall remains the same.