On Air with Altair: 3Q 2018 Market Review Video
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It’s been a very volatile autumn in the markets. What are our takeaways on all the ups and, mostly, downs?
It certainly has been volatile. Unfortunately, volatility is a normal part of investing. The S&P 500 experiences a 10 percent pullback, similar to what we experienced in October, roughly once a year. But what separates a normal volatile market from a much more serious, bear market is a recession. Lasting downturns tend to coincide with recessions, and despite the 10 percent pullback in October, we still believe the probability of a near-term recession is low.
What informs our view that this economic cycle will continue and that a recession in the near term is unlikely?
We pay close attention to many macroeconomic data points, including leading economic indicators, which help us look to the future. They currently show that most sectors, aside from the soft housing market, remain strong. The Conference Board’s Leading Economic Index recently saw its biggest monthly increase in seven months. The evidence we monitor suggests the U.S. business cycle remains on a growth path heading into 2019.
So far the U.S. economy has not been significantly hurt by the trade war with China. When will it meaningfully impact the global economy and markets?
The trade war has been the darkest cloud hanging over the markets since the beginning of the year. It has yet to impact corporate earnings as third quarter earnings have still been very strong. However, more U.S. companies have issued warnings that the trade war will impact their future earnings if not resolved.. We still expect a negotiated resolution to end the U.S.-China trade war – especially with China under pressure from its struggling stock market and softening economy.
The market expects the Federal Reserve will raise interest rates again in December, the ninth increase in three years. What risks do these continuing rate hikes pose?
We believe the Fed can still increase rates in December without halting economic momentum. As long as growth continues and the Fed remains data-dependent, the economy can handle it. We would be concerned if the Fed were to remain on a rate-hike path next year even in the face of a weakening economy.
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