Markets spent a rather quiet week celebrating the Thanksgiving Day holiday. Economic data, while not strong, were generally positive, and investors seem ready to embrace the increasing likelihood that the Federal Reserve will raise rates at its policy meeting in December. The S&P 500 Index was up fractionally for the week, rising an insignificant 0.08%. There was better news below the surface, however, as the S&P Midcap Index was up 1.56% and the S&P Smallcap Index rose an even more impressive 2.0%.
The highly anticipated third quarter Gross Domestic Product (“GDP”) final reading brought good news, as the latest reading showed that the economy grew at a 2.1% annualized rate rather than the 1.5% rate earlier reported. Final real sales were revised lower, while inventory levels were revised higher, mitigating the positive impact somewhat.
Corporate profit levels fell in the third quarter, but there was some positive news below the surface there as well. Most of the weakness was due to subpar results in the financial sector and in profits generated outside the United States. Domestic nonfinancial profits are three times larger than financial profits and twice as large as profits generated from non-U.S. sources. Restrained unit labor costs, strength in the U.S. dollar, solid consumer spending levels and housing and healthcare spending should continue to provide impetus for this very important component of the corporate sector.
Regular readers of this weekly update are aware that Madison Park Capital Advisor portfolios have for several years reflected a tactical overweight bias toward the mid- and smallcap segments of the domestic economy relative to more passive strategic portfolio weightings. For the reasons mentioned above, and more not included in this brief summary, we continue to believe it makes sense to continue on that path until our indicators dictate otherwise.