We expect good reports this way on durable goods and manufacturing this week, consistent with other recent data points. The improvement in the business outlook is being clearly embedded in market expectations.


It has been more than 90 months since the last recession. Expected tax cuts, infrastructure spending, and regulation are fueling consumer and business optimism. In turn, this optimism is helping lift the stock market to records. Given this, we want to spend a minute to remind ourselves how we got here.

During the ’07-09 recession, the U.S. stock market had an average value of about $13.4 trillion. The economy, meanwhile, produced average annualized output near $14.6 trillion. Today, the U.S. stock market is valued at $26.5 trillion and sits atop a $18.8 trillion economy. In other words, today’s market valuation is relatively high compared to the economy.

What drove the turnaround and sustained the momentum from the dark days of 2009? In our view, it was the combination of steady growth in demand generated first by government and continued by consumers (chart below). The chart below shows just how steady the combination of government and consumption growth has been. Since the end of the recession, consumption and government spending increased $2.9 trillion. By contrast, business investment increased $670 billion.

Another important thing to note from the graph is just how steady the combined mix of household consumption and government has been. Rarely has the sum total of these parts of the economy contracted. By contrast, business investment tends to be far more fickle. Such investment tends to fall sharply at the advent of recession.

As you can see, the consumer carries most of the water for the economy most of the time, and does so consistently. We expect steady numbers on consumer income and spending this week, alongside a strong showing for durable goods (Monday) and manufacturing PMI (Wednesday)..


Date Report Period Survey Prior
Monday, Feb 27: Durable Goods Orders Jan 2.0% -0.5%
Durables Ex Transportation Jan 0.5% 0.5%
Cap Goods Orders Nondef Ex Air Jan 0.5% 0.7%
Cap Goods Ship Nondef Ex Air Jan 1.0%
Pending Home Sales M/M Jan 0.9% 1.6%
Pending Home Sales Y/Y Jan -2.0%
Tuesday, Feb 28: GDP Annualized Q/Q 4Q16 2.1% 1.9%
Advance Goods Trade Balance Jan -$66 B -$65 B
S&P Case-Shiller HPI M/M Dec 0.7% 0.9%
S&P Case-Shiller HPI Y/Y Dec 5.3%
Chicago PMI Feb 53.0 50.3
Consumer Confidence Feb 111.0 111.8
Wednesday, Mar 1: Personal Income Jan 0.3% 0.3%
Personal Spending Jan 0.3% 0.5%
ISM Manufacturing Index Feb 55.8 56.0
Domestic Vehicle Sales Feb 13.6 M
Total Vehicle Sales Feb 17.6 M 17.5 M
PMI Manufacturing Index Feb 54.3
Construction Spending Jan 0.7% -0.2%
Fed Beige Book
Thursday, Mar 2: Weekly Jobless Claims 2/25 244 K
Friday, Mar 3: ISM Non-Manufacturing Index Feb 56.5 56.5
Source: Bloomberg


Based on shorter-term expectations, the “tactical” allocation within portfolios is underweight bonds / overweight stocks.

Kevin Caron, CFA®, Portfolio Manager
Chad Morganlander, Portfolio Manager
Matthew Battipaglia, Analyst
Suzanne Ashley, Junior Analyst



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