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Market Commentary

November 25, 2015

Scott L. Wren, Senior Global Equity Strategist

Analysis and outlook for the equity market

  • The S&P 500 has rallied strongly since the late-September lows. While the monthly employment report is arguably the most important economic report each month, this week investors will see a few other important pieces of data.

What it may mean for investors

  • In this holiday-shortened trading week, we look for the economic releases on the schedule to help confirm that our modest-growth outlook is on track.

Overeating, Football, and Economic Data

Ahh, those pesky economic reports that come out every week. They can turn an investor's day from good to bad or from bad to worse, especially during a thinly-traded holiday week like this one. The equity market can also be surprised meaningfully to the upside when better-than-expected news is released. But for strategists like yours truly who form their investment thesis based on economic projections, this week’s calendar features several important data releases. The investing public should be paying attention.

Regular readers of this piece know that rising consumer confidence has been one of the keys to our positive outlook for the stock market over the last five years. Consumers are feeling much better now than they were at the depths of the financial crisis, and we continue to believe confidence will increase further over the coming 12 months. The Conference Board will release its latest reading on consumer confidence this week. Any reading close to 100 will put this gauge near the highest levels since 2007. In addition, the University of Michigan will release its latest reading of consumer sentiment. This gauge has also rebounded steadily since the lows of the financial crisis. Remember, of course, these confidence gauges do not move in a straight line. Not every reading has been higher than the previous month. But, in our opinion, the trend is what is important, and we believe the direction will continue to be up.

We also recommend our readers pay attention to the report covering the Federal Reserve's (Fed) favorite measure of inflation, Personal Consumption Expenditures (PCE). PCE differs from the government's Consumer Price Index (CPI) because of the way housing and health care prices are calculated and included. In this week's release, on a year-over-year basis, the consensus is calling for an increase of just 1.4 percent. That would be up from the prior 1.3 percent reading. Janet Yellen and company want to see this measure at two percent, or even a touch higher. While this week’s expected reading may appear to be close to the Fed’s desired level, in reality it could take years to move up to the two percent area. As we have stated many times, we are miles and miles away from the Fed’s inflation target. That's unlikely to change soon or quickly. In our opinion, inflation is going to stay low relative to historic levels.

And finally, we think it is important to pay attention to the segment of this week's durable goods report referred to as "non-defense orders for capital goods excluding aircraft" for hints as to the level of business capital spending going on in the economy. Business capital spending has been slow to pick up during this recovery as companies have chosen to sit on cash. They have also preferred, in general, to buy back shares in the open market rather than invest in plant and equipment. Our forward-looking analysis suggests business capital spending will likely improve in coming quarters.

With the Thanksgiving holiday trading break on Thursday, investors will have numerous data points to consider while overeating and watching football in coming days. Enjoy.

Scott WrenAbout Scott Wren

Scott Wren is a senior global equity strategist for Wells Fargo Investment Institute (WFII), an organization that provides global manager research and investment strategy advice to Wells Fargo’s Wealth, Brokerage, and Retirement (WBR) division. WBR is comprised of Wells Fargo Private Bank, Wells Fargo Advisors, Wells Fargo Institutional Retirement, and Abbot Downing businesses, accounting for more than $1.6 trillion* in assets under administration.

Mr. Wren produces strategy and guidance recommendations for global equities. With his knowledge of the financial markets, he is often quoted in national media outlets including Reuters, The Chicago Tribune, The Los Angeles Times, The Washington Post, The Associated Press, and The Wall Street Journal. He has appeared in interviews on CNBC, Bloomberg TV, Fox Business News, and Nightly Business Report. Prior to joining Wells Fargo Advisors predecessor A.G. Edwards in 1998, Mr. Wren worked as a senior foreign exchange dealer for The Boatmen’s National Bank of St. Louis. He began his career on the trading floor of the Chicago Mercantile Exchange and has more than 25 years of experience in financial services.

He received a Bachelor of Science in Business Administration from the University of Kansas and a Master of Finance from Saint Louis University. He is located in St. Louis, Missouri.


The University of Michigan Consumer Sentiment Index is a consumer confidence index published monthly by the University of Michigan. The index is normalized to have a value of 100 in December 1964.

The Conference Board Consumer Confidence Index (CCI) is a barometer of the health of the U.S. economy from the perspective of the consumer. The index is based on consumers’ perceptions of current business and employment conditions, as well as their expectations for six months hence regarding business conditions, employment, and income.

The CPI measures the price of a fixed basket of goods and services purchased by an average consumer.


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