Manufacturing picked up in November based on the latest ISM reading (59.3 from 57.7). New orders, production and employment all strengthened. Tariffs continue to be cited as a key concern. The ISM Services Index increased from 60.3 in October to 60.7 in November. Business activity and new orders strengthened while employment and export orders softened. Tariffs and rising input/labor costs were cited as headwinds moving forward.

U.S. retail sales rebounded 0.8% (4.6% Y/Y) in October led by sales of autos, building materials and electronics/appliances. On the flipside, durable goods orders were weak last month with a decline of 4.4%. Orders were largely flat when excluding the volatile transportation segment. Consumer confidence sat near an 18-year high in October, but the index cooled a bit in November as the future expectations gauge dipped with stock market volatility and Chinese trade tensions.

S&P 500 earnings grew 26% in Q3 with revenue growth of 9.3%. We have discussed concerns over more difficult year-over-year comparisons and that has already started to play out in Q4. Q4 earnings are forecast to grow 13.4% in the S&P 500 and this is down from 16.7% at the end of Q3. Revisions have also been skewed towards the downside. As of today, earnings are projected to grow 20.6% for full year 2018 on revenue growth of 9%, but that is expected to slow to 8.6% in 2019 on revenue growth of 5.6%.

37% of S&P 500 revenues come from overseas markets so there is a definite impact from trade tensions and the stronger U.S. dollar. A pause by the Fed and slower economic growth should lead to a weaker dollar which is ultimately good for non-U.S. assets and multinational corporations. Positive trade developments should also be positive for multinational corporations. The combination of strong earnings growth and the stock market decline has been positive for valuations that are now sitting below recent averages.

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