• Stock prices advanced again last week and have essentially returned to levels seen before the late-summer selloff.

• The U.S. economy faces multiple risks, but we are not expecting a recession any time soon.

• We remain broadly neutral toward stocks, and think investors should continue focusing on selectivity.

Equity markets extended their gains for a second week, following a four-week losing streak.1 Investor sentiment was boosted by news that the U.S. and China plan to meet early next month to discuss trade issues, although it is still unclear how much progress may be made. With the S&P 500 Index advancing 1.8% for the week, stock prices are nearly even with levels of six weeks ago.1 For the week, the more cyclical energy, consumer discretionary and technology sectors led the way, while defensive areas such as utilities, health care and consumer staples lagged.1

Weekly Top Themes

1. The August jobs report confirmed labor market growth is slowing. 130,000 new jobs were created last month, slightly less than expected.2 The good news was that the average hourly work week ticked up 1% and average hourly earnings rose 0.4%, for a 3.2% annualized pace.2 Wage growth rising faster than inflation is good news for consumer spending prospects.

2. Manufacturing data points to weakness. The ISM manufacturing index dropped from 51.2 in July to 49.1 in August, with a reading below 50 indicating contraction.3 Last month was the first time since August 2016 that the index fell below 50.3 The ongoing trade war between the U.S. and China is likely causing notable damage to the manufacturing sector.

3. A long-term trade deal looks elusive. It is good news that the U.S. and China agreed to talk, but we doubt the parties are moving closer to a real deal.

4. We expect corporate earnings downgrades in the coming months. Expectations for future growth remain too high, especially 2020 forecasts.

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