RWM

High frequency indicators can give us a nearly up-to-the-moment view of the economy.The metrics are divided into long-leading, short-leading, and coincident indicators.All three time frames remain very positive, as they have been for the past month or better.There has been no decisive downturn in consumer spending despite the expiration of emergency benefits.But for the first time, political risk must be mentioned as a factor in the near-term picture.

This is a weekly series focused on analyzing the previous week’s economic data releases.The objective is to concentrate on leading indicators of economic activity to determine whether the economy is strengthening or weakening, and the rate of inflation is increasing or decreasing.This week we examine Markit’s mid-month Flash PMI for the manufacturing and service sectors, existing home sales, durable goods orders and weekly unemployment claims.

Today’s dismal print for durable goods didn’t stop the equity market from rallying; the Dow, NASDAQ, and S&P all closed up on the day.Inflation will play a big part in where we go from here; we could continue higher or there could be a phase shift to a more muted upturn.We will see deterioration first through the bankruptcy cycle and that will be the trigger for any sort of move in equities.

The S&P 500 bull market remains intact despite the recent correction.The same cannot be said for the rest of the U.S. and the rest of the world.Beware the bear and the downside risks accumulating all around the U.S. and global stock market today.Stay selective and defensive within the S&P 500 while seeking long-term investment opportunities outside of the S&P 500.

The American Association of Individual Investors' Sentiment Survey release for the week ending 9/23/2020 showed bullish investor sentiment fell 7.1 percentage points to 24.9%.Although individual investors are expressing a low of bullishness for stocks, their response to the amount of investment dollars allocated to stocks is 65%, just above the long-term average.One factor influencing investor asset allocation decisions at the moment might be the low level of interest rates.

Flash PMIs for September 2020 around the world add more evidence to the possibility of a global slowdown during the economy's all-important rebound quarter.Credit spreads are up modestly again, having already plateaued somewhat around late July.July economic concerns continue, the first real challenge in dollar tightening since June, with several key indications being folded into that negative mix.

Housing is a long leading sector of the economy, typically giving us information 12 to 18 months into the future.New home sales are the most leading of all housing metrics, but are very volatile and heavily revised.August new home sales hit the highest level in nearly 15 years.Because they confirm the surge in the less volatile single-family housing permits, the new high is almost certainly a signal rather than a noise, a powerful plus for the economy in 2021.

We believe we have started a new economic expansion and new bull market in stocks, and that we are in the early phase in which stock returns are the greatest.This is why we view any correction in stocks to be a buying opportunity to increase our exposure to stocks and commodities above our benchmark's neutral allocation, rather than the start of a new bear market.With interest rates back at zero and likely to stay there for years to come, cash and bonds, in our view, have poor long-term return characteristics.Over the last month, we began to divest a few positions that had erased the undervaluation we saw when we first bought them as we saw growing opportunities in other areas. One of the areas that has the greatest long-term appeal, in our view, is commodities.