Market Update: Fri, Aug 23, 2019 | LPL Financial Research

Daily Insights

Jackson Hole. Today, policymakers are scheduled to kick off the Federal Reserve’s (Fed) annual Economic Policy Symposium in Jackson Hole, WY. During the conference, Fed Chair Jerome Powell and other Fed members are expected to speak on the future of U.S. monetary policy, a sensitive topic for markets right now. We don’t expect Powell to commit to any future policy decisions, as that could hinder the Fed’s ability to be flexible and data dependent. However, markets could be volatile during speeches as investors try to read into what policymakers are saying about the state of the U.S. economy and monetary policy.

Equities struggle for direction. The S&P 500 Index broke below the 50-day moving average on August 5 and has spent the past few weeks in a tight range just below the closely watched trend indicator. Powell’s speech is likely to be market moving, and on a technical basis we will be watching to see if the S&P 500 can overcome resistance at the 50-day moving average, or if it is pushed below short-term support from the August 5 intraday low of 2,822.

Leading indicators signal growth ahead. U.S. leading indicators rebounded in July, a good sign for the durability of the expansion. The Conference Board’s Leading Economic Index (LEI) rose 0.5% month over month, the biggest gain since September 2018, and the gauge increased 1.6% year over year. The LEI, which is a part of our Five Forecasters, has yet to turn negative this economic cycle. That’s a good sign for the durability of this economic expansion, as we’ll explain later today on the LPL Research blog.

U.S. manufacturing falls to cycle low. U.S. manufacturing has slumped to one of the lowest points in this economic cycle, according to preliminary Markit Purchasing Managers’ Index (PMI) data for August. The U.S. PMI dropped to 49.9, or just below the threshold between expansionary and contractionary territory, for the first time since September 2009. Manufacturing has been the weakest part of the U.S. economy for several months now, plagued by U.S.-China trade tensions and weakening global demand. Even though we primarily watch the Institute for Supply Management’s (ISM) PMI for manufacturing health, the decline in Markit PMI could signal future weakness in the ISM gauge.

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