Q3 2019 Economic and Market Perspective

As we move into Q4, it’s important to differentiate between an economic outlook globally, and an economic outlook domestically. Fears of a recession are fading as this fact settles into the minds of Americans and we can logically conclude that with the long-term slow down of global growth, U.S. markets will be affected accordingly. Results have been an inverted yield curve, interest rate cuts, and a stock market that is non-directional and increasing in volatility. These are not, in and of themselves, indicators of a recession from a domestic standpoint, however it is prudent to take them into account from a global standpoint.

Global and domestic performances in the third quarter finished as follows:

Domestic Markets

S&P 500+1.7%
Dow Jones1.2%

International Markets (at a glance)

Hong Kong-12%
South Africa-12.6%

Markets Indicators (As of dates indicated)

Fed Funds Target2.00%10/4/2019

After a decade of rising interest rates, the US Federal Reserve confirmed suspicions for the second time this quarter by cutting rates 25 basis points, moving the cost of interest down to a range of 1.75%- 2% in their September meeting. Another cut to these benchmark rates further lowers the borrowing cost for short-term debt holders such as credit cards, car loans, and variable mortgage rates and is intended to stimulate consumer spending to boost economic growth. This increase in spending is an important step in the Fed’s attempt at managing market expectations moving forward and enabling the “self-cleaning” of the stock market. Following this announcement, the DOW fell more than 150 points in an immediate reaction to the cut, but Jerome Powell maintains that market growth is expected and that the US outlook remains positive.

Government bonds and gold were top performers in the second quarter and continued to perform into the third, with commodities and emerging-market equities lagging due to a slowing global economy and strength in the U.S. dollar. Despite lingering trade uncertainties, Powell also mitigated the risk associated with the inverted yield curve stating that it’s not so much the changes that occur as it is how long these changes are sustained. In his speech following the committee meeting cutting rates, Powell said, “Just to talk about the current situation, you saw the long-term rates move down a whole lot and then retrace two-thirds of that move in the space of a few days. So, I think what really matters for all financial conditions generally is when there are changes, material changes that are sustained for a period of time.”

We mentioned before that “this is not 2008” and that there is a myriad of factors to be considered before jumping to the conclusion that we are headed to another recession. We maintain that while monitoring market and Fed daily movements is prudent, longevity and sustainability are our number one goals.

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