Economist Robert Genetski provides a weekly look at the U.S. economy and prospects for growth or retraction.
U.S. stocks were mixed this past week. Nasdaq and QQQs increased by 2 percent to new all-time highs. The S&P was mostly unchanged, and the Dow and small cap stocks were down.
The news overall was mostly positive. Coronavirus cases continue to trend downward, the economy is rebounding, monetary policy remains highly expansive and the polls show President Donald Trump narrowing the gap in the polls with former Vice President Joe Biden. These trends are likely to continue.
My analysis shows the S&P500 is at fair value. Given the many potential problems facing the economy, stocks may have gotten a bit ahead of themselves. However, given the current highly expansive monetary policy, any downturn in the market should be fairly moderate. Look for longer-term interest rates to head higher if upcoming data continue to show the economy growing rapidly.
A Look Back
Most economic numbers continue to point to a rapid recovery. The exception is the labor market. It continues to lag the rest of the economy. Weekly initial unemployment claims rose to 1.1 million in the second week of August. Insured unemployment payments in the first week of this month amounted to 14.8 million.
In contrast, new housing activity is soaring, with the Homebuilders survey for early August at 78, the highest reading in more than 20 years.
The Federal Reserve reported its measure of manufacturing for July rose by 3 percent to reach 92 percent of its peak in January of this year.
What to Expect This Week
The upcoming economic numbers should remain positive. The Markit surveys for early August are likely to rise to the mid-50s.
If so, it should help to convince investors that the economy is recovering faster than most had expected. Upcoming consumer confidence data should also show a significant improvement.
The most important economic news this coming week will be on Thursday (weekly unemployment data) and Friday (consumer spending and income) for July. In June, wages and salaries were at 94 percent of their peak in February. I forecast wages and salaries for July will reach 95 percent to 97 percent of their prior peak.
Forces Impacting the Near-term Outlook for Stock Prices:
Economic Fundamentals: positive
Stock Valuation: 0% fully-valued
Monetary Policy: highly expansive
Stock Exposure: 90%