With stocks setting more new record highs last week, why are we concerned about watching for recession? While our outlook is still optimistic, we don’t want to be complacent. We expect steady growth in the U.S. economy and corporate profits in 2020. We are encouraged by recent progress on trade and evidence of stabilizing growth in international economies, and we expect further gains for stocks are possible.
It’s been a tale of two economies in 2019. U.S. consumers are spending at a solid rate, which we expect to continue through the important holiday shopping season that is rapidly approaching. U.S. businesses, on the other hand, are not opening up their wallets, and capital expenditures (capex) growth has stalled. Consumer sentiment has remained elevated through most of this year, while gauges of business and chief-executive officer confidence have declined to three-year lows.
We have all heard the old Wall Street adage, “Sell in May and go away.” The six-month period from May through October historically has been the worst time of year to own stocks, while the six months between November and April historically have been the best [Figure 1]. Friday, November 1, marked the start of this favorable seasonal period that, as history has shown, can stand a good chance of delivering gains for stocks. In the short term, the calendar also looks very friendly: November and December historically have been the best two months of the year for the S&P 500.