By Kieran Osborne, MBus, CFA®
CHIEF INVESTMENT OFFICER
We’ve prepared an economic update and outlook for the fourth quarter of 2018 that focuses on a few key themes – commentary on the recent stock market sell-off, a discussion of the ongoing trade war narrative and its impact on the economy, and the outlook for Fed policy and interest rates.
The recent stock market sell-off has been driven by concerns over ongoing trade tensions, interest rates, and peak earnings concerns, amongst others. However, the recent correction doesn’t appear driven by a material change in fundamentals. We believe recent volatility may be evident of the market transitioning back towards a more “normal” market environment. With the recent sell-off, valuations appear in-line to cheap vs. historic averages, with most compelling value within international and emerging markets.
The trade war narrative has dominated headlines this year. Many agree something needs to get done with China, but there is wide frustration at the approach being taken to this process. Trade tensions have had a more negative impact on international and EM economies, but U.S. investors are beginning to digest the implications on business earnings. Ultimately, building pressure may lead to some form of resolution.
Fed Chair Powell has been forthright in communicating that interest rates have some way to go before normalizing. We anticipate another rate increase in December and three more in 2019. Increasing interest rates have put pressure on bond prices, though satellite fixed income – like high yield and floating rate bonds – have outperformed.
For more details on these key themes and outlook, watch Kieran’s Market Perspectives video presentation.
Please contact your client advisor if you have any questions on this presentation.