Main Street Sentiment at 7-Year Low

Pessimism has rapidly infiltrated Main Street’s outlook, according to the Federal Reserve’s (Fed) latest edition of the Beige Book. By our measure, sentiment in the March 6 Beige Book, a qualitative assessment of the domestic economy and each of the 12 Fed districts, fell to its lowest point in seven years [Figure 1]. On the surface, the Beige Book’s negative tone is striking compared to recent versions, but context around key words is especially important in this edition.

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Modest Pullback or Something Bigger?

Following the strong 2019 rally, we ask if stocks are overdue for a pullback. The S&P 500 Index rallied 17% in 2019 and 9.4% since the December 24, 2018, low. The strength of the rally has been a surprise to many given widespread concerns about slower global growth, trade uncertainty, and the age of the bull market—which turned 10 last weekend, as we discussed here last week. Following that strong rally, a pullback is to be expected; but we don’t think it will get much worse than last week’s 2.1% drop, for reasons discussed below.

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An Aging Cycle

The tenth anniversary of the S&P 500 Index bull market is coming up on March 9. As the U.S. stock rally’s double-digit birthday nears, we’ve reflected a lot on the durability of the current economic cycle. The U.S. economic expansion is entering its 118th month, on track to become the longest recovery on record in July.

Some things in life get better with age, but recession calls have grown louder recently amid heightened global uncertainty and market volatility. While it is important to be mindful of where we are in the cycle, we see a lot of evidence that this economic cycle has enough fuel left in its tank to persevere at least through the end of this year and could prove durable.

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The Bull Turns 10

The bull market will celebrate its tenth birthday on March 9, 2019. During that period, the S&P 500 Index has increased more than fourfold in value, producing a total return of 410% (17.7% annualized) while rising 314% in price. Concerns over the global economy, along with a potential policy mistake by the Federal Reserve (Fed) and the trade dispute with China, all have many wondering just how much the longest bull market ever could have left in the tank. This week, we’ll show why this bull market is indeed alive and well and could make it to 11 next year.

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