- Three key pieces of economic data will be revealed in the following days.
- The stock market is likely to get a lift from improving consumer confidence and a stabilizing manufacturing sector.
- The market is also reacting positively on news of the Fed keeping interest rates steady.
The turn of the calendar comes with a handful of economic developments that can impact the stock market’s momentum at the beginning of 2020.
New data will reveal if American consumers were out in force this holiday season despite trade war tensions and economic uncertainty. In addition, the opening week of the year will give clues as to whether the manufacturing sector is out of the woods. Lastly, the FOMC meeting minutes could provide more clarity on why the Federal Reserve opted to keep interest rates steady.
Consumer Confidence Shows Signs of Recovery
American consumers are flexing their muscles this holiday season. According to Mastercard SpendingPulse, retail sales this holiday season soared by 3.4 percent compared to 2018. Shoppers were busy buying gifts online as e-commerce sales grew by 18.8 percent year-over-year.
On top of holiday spending, consumers are also shopping for homes. Mike Fratantoni, chief economist of the Mortgage Bankers Association (MBA), expects more homebuyers in 2020. He said,
Low mortgage rates and millennial buyer demand will be the primary reasons for a slight increase in purchase activity in 2020. We have started to see a pick up in the homeownership rate in the younger age cohorts.
Fratantoni’s expectation is being supported by a strong uptrend in the number of home viewings. The ShowingTime Showing Index, which monitors the average number of home buyer showings, has been growing from August to November 2019. The four-month run of increasing home viewing is the longest since October 2017 to January 2018.
All in all, Americans appear not to be bothered by political and economic uncertainties.
This is what happens when you have one of the lowest unemployment rates in nearly two decades. The Bureau of Labor Statistics released unemployment numbers in November that stood at 3.5 percent. With more people on the payroll, I expect consumer confidence to show signs of improvement.
The housing data and favorable unemployment rate points to a healthy overall S&P 500 and overall stock market.
ISM Manufacturing PMI Likely to Stabilize
The contraction in the US manufacturing sector was one of the biggest factors that triggered the slowdown in the country’s economy this year. However, it appears that the worst is over for the industry.
Analysts predict that the Institute of Supply Management’s Purchasing Managers Index (ISM PMI) would increase from 48.10 to 49. The 0.9 rise may sound unimpressive but is better than the alternative. More importantly, it suggests that the manufacturing sector may be bottoming out.
Thomas Lee, Fundstrat co-founder, predicted in October that the ISM PMI is likely carving out a bottom. Along with a stabilizing factory sector, he also predicted that the S&P 500 would climb to 3,125. So far, both of his expectations have materialized. Thus, a manufacturing industry showing signs of recovery could only give the stock market a healthy boost.
The Stock Market Is Pricing-In Steady Interest Rates
Lastly, the Federal Reserve decided to keep interest rates steady. The central bank stopped consecutive rate reductions that boosted the stock market and allayed fears of an economic downturn.
As per CNN, central bankers all agreed to retain rates between 1.5 percent and 1.75 percent. More details on how the Fed made the decision would be divulged in the FOMC minutes of the meeting.
While the verdict of the Fed to halt rate cuts may disappoint president Donald Trump, the move seems to be aligned with investor expectations. News of the Fed keeping interest rates steady helped ignite a rally that saw the S&P 500 climb from 3,135.8 to record a fresh high of 3,247.9. Regardless of how central bankers arrived at the decision, the market has likely priced in this factor.