In the face of several potential market landmines, the S&P 500 surged for a 9.88% return in the final three months and rounded out the best year since 2013.
Exhibit 1. Fourth Quarter Performance
As we digest our Thanksgiving dinner and move into December, the issue of trade is still the top headline moving markets. In spite of the mixed messages on a pending trade deal with China, stock markets continue to eke out new highs with the S&P 500 climbing 3.4% for the month. We feel stocks can continue to slowly move higher so long as the news on trade remains positive. Given the magnitude and importance of China/US trade, we believe the Phase One deal is imminent but may not be finalized prior to the additional tariffs being implemented on December 15th. A collective sigh of relief will be heard across the investing world once a signing date is announced.
December also has us looking at economic data for signs of continued consumer strength a
As we wrap up the third quarter, many domestic and global issues remain at the forefront of the market landscape. Domestically we face Presidential impeachment proceedings, a slowing economy, and Fed interest rate decisions. On the global front, the US-China trade dispute, slowing China growth, Brexit, USMCA trade deal, and Iranian tensions are impacting commodity, equity, and fixed income investments. With this as the economic backdrop, many investors are concerned a recession is on the horizon for the United States.
As mentioned in our last blog post, for the first time in over ten years, the federal reserve reduced the benchmark lending rate (also known as the fed funds rate), by 0.25%. Interest rates in the US and around the world remain at historic low levels. Two key reasons are driving the low-interest-rate regime:
What US investors and savers may be unaware of is that there is currently over $14 trillion in investment-grade bonds around the world, that have negative yields! A German or Japanese investor, buying a 10-year government bond in their country today will earn negative returns if they hold on to those bonds to maturity!
The table below provides a snapshot of the current interest rates in key developed countries.
1-Yr Govt. Bond Yield
10-Yr Govt. Bond Yield
30-Yr Govt. Bond Yield
Earlier this week the Federal Reserve announced its first interest rate cut in more than ten years. After raising interest rates (fed funds rate) from 0.25% to 2.5% during the course of the last 3.5 years, the federal reserve lowered the benchmark lending rate by 0.25%. The fed funds rate now stands at 2.25%.
While the overall US economic backdrop remains decent, the weaker cross-currents in the global economy led the Fed to announce this preemptive interest rate cut. Uncertainty related to US-China trade war and a below-target inflation reading in the US (below their 2% target) also contributed to this decision to cut rates.
With the federal reserve and other central ba
Tariff Overhang - June 2019
The old Wall Street adage, sell-in-May-and-go-away has lived up to its name this year. After a strong start to the year, most major stock indices were down 6 to 8% for the month of May. The good news is, despite this sharp sell-off in May, most major equity indices are still positive for the year, up +5% to 10% (as of May-end). Looking back a bit further in the rear view, the equity market is at the same level it was last spring (as shown in the chart above, for the S&P 500 Index). This is chart shows a stock market that is a bit tired on the upside and is waiting for a better fundamental backdrop to move higher.
The catalyst for this sell-off last month? Escalating trade war with China, restricting US market (supplier and e
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