Stocks traded mixed this week, after tariff concerns reemerged heading into the December 15th deadline for a deal with China next week but some signs of positive news out of China and Europe allayed fears of a deeper slowdown in manufacturing data. Data abroad was countered, however, by a deepening slowdown in US manufacturing orders and production, which showed the contraction had worsened domestically. Investors main focus this week will be on the jobs data announced Friday, which economists believe will show a continued strong pace in hiring for now. Another blow to confidence was US action to slap additional tariffs on European exports, in an escalating fight with our trade allies that could add further trouble ahead. Any move to take the same aggressive stance with Europe that has been put on China could easily turn recent weakness globally into a real, lasting downturn. The yield curve remains marginally steeper, a sign of a healthier economic backdrop than in recent months, though mostly due to policy action from the Fed.

We believe that the main driver of markets over the next several months will continue be central bank policy, which globally has moved back into stimulus territory this year. The big story many are not talking about are the trillions of dollars that have been flooding bond and equity markets around the world as the European Central Bank, the Federal Reserve, and other policy makers attempt to avoid further pain in the manufacturing sector that could spill over to the consumer and lead to recession. The Fed in particular has been aggressively purchasing short term bonds, T-bills more specifically, to stabilize overnight borrowing costs. This action, which they have dubbed as “non-QE”, referring to their prior large bond purchases over the past decade, is intended to simply keep the plumbing of the financial system operating in normal order. The consequence, however, is additional money being lent at favorable rates, boosting asset prices in a similar fashion to previous bond buying programs that resulted in a powerful tailwind to investors. This backdrop should continue to support the expansion for the foreseeable future, as the old adage of “don’t fight the Fed” remains as prescient as ever.

At this time we are making no changes to the portfolios, as we believe equities will remain positively positioned moving into 2020 on the back of easing monetary policy, a strong US consumer, and a rebound in corporate profits and manufacturing activity. Much of this may already be baked into current equity prices, but given current valuations and low growth expectations, along with bond yields remaining subdued, we do not foresee a high probability of recession ahead in the near term. Intermittent market volatility based on next year’s election cycle should be expected, but the major underlying themes of low unemployment, a supportive Federal Reserve, and ongoing gains in innovation should keep the bull market intact for now. As always, we continue to remain extremely focused on monitoring unfolding market dynamics and reacting only when appropriate. Please feel free to call our office with any questions you may have.

Stocks traded mixed this week, after tariff concerns reemerged heading into the December 15th deadline for a deal with China next week but some signs of positive news out of China and Europe allayed fears of a deeper slowdown in manufacturing data. Data abroad was countered, however, by a deepening slowdown in US manufacturing orders and production, which showed the contraction had worsened domestically. Investors main focus this week will be on the jobs data announced Friday, which economists believe will show a continued strong pace in hiring for now. Another blow to confidence was US action to slap additional tariffs on European exports, in an escalating fight with our trade allies that could add further trouble ahead. Any move to take the same aggressive stance with Europe that has been put on China could easily turn recent weakness globally into a real, lasting downturn. The yield curve remains marginally steeper, a sign of a healthier economic backdrop than in recent months, though mostly due to policy action from the Fed.

We believe that the main driver of markets over the next several months will continue be central bank policy, which globally has moved back into stimulus territory this year. The big story many are not talking about are the trillions of dollars that have been flooding bond and equity markets around the world as the European Central Bank, the Federal Reserve, and other policy makers attempt to avoid further pain in the manufacturing sector that could spill over to the consumer and lead to recession. The Fed in particular has been aggressively purchasing short term bonds, T-bills more specifically, to stabilize overnight borrowing costs. This action, which they have dubbed as “non-QE”, referring to their prior large bond purchases over the past decade, is intended to simply keep the plumbing of the financial system operating in normal order. The consequence, however, is additional money being lent at favorable rates, boosting asset prices in a similar fashion to previous bond buying programs that resulted in a powerful tailwind to investors. This backdrop should continue to support the expansion for the foreseeable future, as the old adage of “don’t fight the Fed” remains as prescient as ever.

At this time we are making no changes to the portfolios, as we believe equities will remain positively positioned moving into 2020 on the back of easing monetary policy, a strong US consumer, and a rebound in corporate profits and manufacturing activity. Much of this may already be baked into current equity prices, but given current valuations and low growth expectations, along with bond yields remaining subdued, we do not foresee a high probability of recession ahead in the near term. Intermittent market volatility based on next year’s election cycle should be expected, but the major underlying themes of low unemployment, a supportive Federal Reserve, and ongoing gains in innovation should keep the bull market intact for now. As always, we continue to remain extremely focused on monitoring unfolding market dynamics and reacting only when appropriate. Please feel free to call our office with any questions you may have.