Market Monitor: October Mid-Month Update

Twice a month, we send clients this overview of the markets and roundup of key economic news stories. Similar to Altair Insight, it enables us to share our big-picture views while also highlighting select market returns and developments that we feel are important.

Headlines and Highlights
  • Interim trade pact lifts markets: President Trump announced what he called a “phase one deal” with China following high-level talks between the world’s two biggest economic powers. Trump called off a planned tariff increase this month and said China will purchase $40 to $50 billion of U.S. agricultural products as part of the partial agreement, although further details were limited and Beijing described it only as “progress.” Investors were optimistic, boosting the Standard & Poor’s 500 Index by 3% over the past week following a down start to October.
  • IMF downgrades global growth outlook to lowest in a decade: The International Monetary Fund said the world economy is poised to fall to its slowest growth rate since 2008 as higher import tariffs from the trade war crimp manufacturing and global trade. The IMF lowered its 2019 global growth estimate to 3.0% from 3.3% six months ago and predicted the “big four” economies of China, the U.S., the eurozone and Japan will see no improvement in their growth rates over the next five years. However, it forecast a recovery next year to a rate of 3.4% thanks to improvement in emerging markets in Latin America, the Middle East and Europe.
  • U.S. consumer sentiment resurges: Americans in October showed the most optimism about the economy in three months after expressing some doubt a month earlier amid escalating trade tensions. The rebound in the University of Michigan’s sentiment index came as consumers anticipated larger income gains and lower inflation during the year ahead.
Chart of Interest

market monitor

Steady sentiment: Consumers continue to buoy the economy despite slowing global growth. The consumer sentiment index has remained at elevated levels throughout the trade war.

Sources: St. Louis Federal Reserve , Altair Advisers
Key Takeaways
  • The latest jobs report, while slightly below expectations, signaled continuing strength in the labor market despite the economy slowing. U.S. employers added 136,000 jobs in September and unemployment dropped to a 50-year low of 3.5%.
  • Markets responded positively to the Federal Reserve’s decision to start buying $60 billion a month of Treasury bills to address cash shortages that caused a recent spike in the overnight cost of borrowing known as the “repo” market. Expanding its nearly $4 trillion balance sheet after almost two years of declines is another form of monetary easing along with its two recent interest-rate cuts – and potentially a third by year-end.
  • The yield curve un-inverted as economic data improved and the Fed’s balance sheet began expanding again, sending 10-year Treasury yields back above both 3-month and 2-year yields. The 10-year yield had fallen below the 3-month for much of the time since trade talks broke down in May and also briefly was below the 2-year, which had heightened concerns about a possible recession.
  • Emerging-market stocks fell nearly 5% in the third quarter as a rising U.S. dollar put pressure on their economies. But the benchmark iShares MSCI Emerging Markets ETF has rebounded 8% off its low point in mid-August as the dollar flattened and emerging economies showed resilience.
  • U.S. economic growth is now estimated to have remained roughly level since topping 3.1% in the first quarter. Third-quarter GDP is now pegged at about 1.9% according to a blend of estimates by the New York and Atlanta Fed offices – on par with second-quarter growth of 2.0%. We believe this growth, while not great, continues to reflect a stable economy.

The material shown is for informational purposes only. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, and actual results may differ materially from those anticipated in forward-looking statements. As a practical matter, no entity is able to accurately and consistently predict future market activities, and all investments are subject to the risk of loss. While efforts are made to ensure information contained herein is accurate, Altair Advisers LLC cannot guarantee the accuracy of all such information presented. Material contained in this publication should not be construed as accounting, legal, or tax advice