by | Oct 12, 2019 | Market Updates


  • Despite the return of volatility, large cap U.S. equities finished the quarter higher
  • Tweet risk (the erstwhile headline risk) was a primary source of volatility, stoking concerns over trade conflicts causing a global growth slowdown
  • Despite the headlines, the U.S. economy maintained its plow horse-like trudge ahead, though signs of stress are appearing
  • No Q3 commentary is complete without the obligatory inverted yield curve reference
  • The Fed cut rates, with the market anticipating many more to come
  • When the S&P is leading the charge, it’s easy to forget diversification is important


  • Though it sure didn’t feel that way, the S&P 500 closed the quarter higher by 1.7%

  • The trend of large beating small remained intact
  • However, value started to show some signs of life, especially in small cap (at least in relative terms)
  • Defensive names (Utilities, REITs, Staples) were the best performers across the cap spectrum, while Energy was the worst sector
  • The U.S. remains the best performer among developed markets
    • Multiples have expanded globally by meaningful margins
    • EPS growth has detracted everywhere except in the U.S.


  • It was all about the inverted yield curve in Q3, though we have seen steepening recently as the market banks on Fed cuts

  • The disconnect between the Fed’s infamous dot plots and market expectations for Fed funds rates are even wider than usual

  • Amazing capital appreciation YTD for bonds!

  • Though U.S. yields are low, they are even lower outside the U.S., with the amount of negative yielding debt breaking records


  • Employment – Strong:
    • Unemployment rate at an all-time low

  • Consumer – Strong:
    • Debt service and net worth look great

    • Consumer sentiment remains strong

  • Housing – Strong:
    • With the slide in Treasury yields, mortgage rates are attractive (as are refis)

    • Home sales continue to be a bright spot

  • Inflation – Muted:
    • With unemployment low, wage inflation had ticked higher earlier in the year, but is trending lower, remaining below the 4% long-term average

    • Same for CPI

  • Commodity prices
    • Gold has rallied as central banks move toward easing
    • Oil, on the other hand, has fallen despite geopolitical tensions and supply disruptions

  • Business
    • ISM Manufacturing – Slipped below 50 for the first time since the expansion began
      • Looking beneath the hood, none of the components look particularly good
      • Exports were specifically cited as a primary cause for weakness

    • ISM Services – Not quite as low as prior troughs this expansion, but getting close


  • The S&P 500 continues to make new highs despite weaker economic data on several important fronts
  • The U.S. consumer looks (and feels) strong, as does housing, making calls for an imminent recession seem alarmist
  • Global central banks easing on both fronts (balance sheet expansion and rate cuts)


  • U.S. equities are expensive, especially “stable” growth companies

  • Unattractive risk/reward for U.S. Bonds
    • Yield (white line) is near a low
    • Duration (green line) is near a high


  • Recent ISM data in the S. has been weak on both manufacturing and services, dragging already tepid GDP growth estimates back below 2%

  • Globally, the story is no different, with very few economies in expansion territory




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