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Dear clients and friends,

 

At Perseus Wealth it is very important to us that you are well informed about what’s happening in the markets.  Here is a brief recap of what has been going on over the last month or so and what we expect in the month ahead.

What’s happening now:


An improving US consumer, recovering yield curve, and trade progress drive the market higher in November.

What’s going on? Following the Fed’s decision to reduce the Federal Funds Rate by 0.25% in October, U.S. markets continue to enjoy hitting new all-time highs, as economic data continues to hold steady (and in some cases improve) surrounding labor, consumption, productivity, and sentiment.

Despite the cut in short-term interest rates, the yield curve is slowly returning to normal and is no longer “inverted.” This will ease the burden on the global banking system and credit markets but will likely bring rising mid to long-term rates and falling bond values.

Finally, Global sentiment surrounding trade talks between Beijing and the U.S. have begun to improve, as reflected by reports of industrial spending in international domains. Optimism is cautiously increasing that a deal can be signed within the next six months.

Why is it important? An inverted yield curve and slowing global trade are common symptoms of a looming recessionary environment. In early 2019, economic data in the U.S. began to soften following in the footsteps of most international reports. The data continued to appear worrisome through the summer as trade conflicts escalated and global banking struggled.

Although some recent economic reports continue to come in below projections, such as industrial production figures, the strong U.S. consumer coupled with low inflation continues to be a main driver for the U.S. economy going into the final quarter of 2019.

As the topics mentioned above improve, the odds of extending the bull market grow.

What is the expected impact from the recent activity? The trade war between the U.S. and China has dominated many of the market headlines for quite some time and the issue has spread into other key areas of economic health, such as the Federal Reserve’s interest rate policy. Heading into an election year, the belief is that the Trump administration will push for policy which will reward the economy. With the most recent developments on trade “coming down to short strokes,” as reported by White House officials, there may be additional tailwinds behind the current rally. Retail sales in October grew by 0.3% a positive surprise versus an anticipated 0.2% and a reversal from the miss in September. This is an additional positive sign and a positive sign for the economy as we head into the holiday shopping season, since the consumer is responsible for two-thirds of GDP growth.

The month ahead – Last year during this time, the market went through a phase of increased volatility which lasted until Christmas and wiped out the entire year’s gain. However, progress from many of the issues which caused last year’s volatility are contributing to the current price appreciation in both foreign and domestic markets. Key reports from international industrial companies will be a helpful signal as to whether foreign markets believe trade progress to be substantial.

The bottom line - As we head into Thanksgiving, the recovery in economic data has helped reduce the fears of a recession in the immediate future. The current environment of low inflation, a fully employed workforce, a positive sloping yield-curve and increased trade progress between China and the U.S. are moving markets into new all-time highs. However, the current economic cycle is long in the tooth when compared to other historic expansions and can be sensitive to any surprises that may arise. We will continue to monitor important sources of information as they are reported and as always, please call us with any questions.

 

Best,

 

John and Sean

 

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that any strategy will be successful.