• While U.S. growth appears mediocre, it looks stronger than other areas of the world.

• Impeachment proceedings will probably add to uncertainty and bog down an already dysfunctional Washington.

• We are broadly neutral toward stocks and think upside and downside risks appear balanced.

U.S. stocks struggled for a second straight week, with the S&P 500 Index falling 1%.1 More defensive areas such as utilities, REITs and consumer staples outperformed, while health care, energy and communications services lagged.1 Mixed economic data was pushed to the sidelines by the news that the House of Representatives launched a formal impeachment process against President Trump.

Weekly Top Themes

1. U.S. economic data shows signs of improvement, but we think the economy will remain mediocre. This trend was reflected in the September U.S. flash manufacturing purchasing managers’ index, which rose to a better-than-expected, but still-modest, 51.0 from 50.3 in August.2

2. On the other hand, European growth is struggling. Manufacturing trends remain a key indicator as the European composite PMI fell from 51.9 to 50.4 in September and the German manufacturing PMI was down to 41.4, marking its weakest level in more than a decade.2

3. Weak confidence levels and trade uncertainty are holding back the global economy. Major economies around the world are adopting stimulative monetary and fiscal policies, which are helping to prolong the expansion. But we find it hard to make a case for more robust growth levels, absent easing trade tensions and a move toward more certainty.

4. Debate continues over where the U.S. falls in the economic cycle but the world is clearly in the latter stages. For one, corporate profits as a share of gross domestic product peaked a couple of years ago, which is a classic sign that the cycle is drawing to a close.1 Additionally, both businesses and consumers seem more optimistic about today compared to where they will be in the future.

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