Last week Reuters reported, "Strong U.S. retail sales bolster third quarter growth outlook."
In a climate in which the term "fake news" is tossed around so lightly, it was refreshing to read the as reported facts. The U.S. economy is accelerating.
What this Reuters story missed, however, is just how broad based is the strength of the U.S. economy beyond just the retail sales data. Here's a more comprehensive look at key recently reported data:
- Retail Sales numbers revealed year-over-year acceleration to 4.2% from 3.4% in the prior month.
- Industrial Production hit a year-to-date high of 2.2% year-over-year growth (totaling six consecutive months of acceleration) after contracting 20 straight months from April 2015 to November 2016.
- Consumer Confidence accelerated to 97.6 in August versus 93.4 in July
- Earnings: So far, 473 S&P 500 companies have reported aggregate year-over-year sales and earnings growth of 5.3% and 9.3% respectively
All in, this data suggests investors should stay long the U.S. stock market. In our investment research framework, U.S. growth and inflation are the two most consequential factors for the forecasting of future financial market returns. With the U.S. economy strengthening and inflation slowing, our back-testing of the last 20 years of financial market returns suggest Technology (XLK) and Consumer Discretionary (XLY) are the best performing sectors in this environment.