Market Monitor: September – Altair’s Semi-Monthly Market 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
- New NAFTA deal settles key U.S. trade fight: U.S. and Canadian negotiators settled on terms of a revamped North American Free Trade Agreement just before a September 30th deadline, avoiding an impasse that could have jeopardized $500 billion in annual trade. The accord preserves the world’s largest free trade agreement as a three-nation pact after the United States and Mexico hashed out terms in August. The newly dubbed United States-Mexico-Canada Agreement (USMCA) is to be signed by the three nations’ leaders by the end of November, with Congress expected to act on it next year.
- Fed maintains tightening pace with third rate hike of 2018. The Federal Reserve, as expected, raised the short-term interest rate by 0.25 percent to a range of 2.0-2.25 percent, the highest since April 2008. It projected another increase in December and three more in 2019 while boosting its estimate for U.S. GDP growth this year to 3.1 percent from 2.8 percent. The Fed has been able to keep boosting rates as planned thanks to solid economic data supporting the increases.
- Argentina gets biggest loan in IMF history: Argentina, one of several emerging markets to experience economic trouble recently, received a record $57.1 billion emergency loan from the International Monetary Fund. The lending package was beefed up from the initial $50 billion in an effort to restore market confidence as alarmed investors pulled money from the South American country. It requires Argentina to commit to a zero deficit in 2019, among other stringent conditions.
Selected Market Returns
Sources: Morningstar, Altair Advisers
- The U.S.-China trade stand-off continues to weigh on international markets, in particular emerging markets, and presents a threat to world economic growth the longer it continues. The NAFTA overhaul, however, removes one of the outstanding trade conflicts and demonstrates the Trump administration’s eventual willingness to negotiate resolutions to trade and tariffs disputes.
- We agree with the Fed’s upbeat assessment of the U.S. economy, given the current backdrop of solid data, strong earnings, low unemployment, benign inflation and growing business spending. But we remain watchful of the possibility of the Fed overtightening and inverting the yield curve, which could hasten a recession.
- Despite the recent uptick in wages, inflation is still under control and poses no immediate threat to the economy. The latest reading of core PCE (Personal Consumption Expenditures price index) was an annualized 2 percent, right at the Fed’s target rate.
- Through three quarters, effectively all 2018 market gains have come from U.S. stocks while all other asset classes have underwhelmed. We do not expect this disparity to continue. Both the halt of the U.S. dollar’s rapid climb and ultimately an easing of global trade constraints should boost the outlook for international stocks and commodities.
- Midterm elections and any political turbulence that may also result from the Robert Mueller investigation may create market volatility in the weeks ahead. Based on past elections and the current vigor of the U.S. economy, we believe the impact on markets will be temporary.
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.