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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:

What’s going on?

  • Interest rates on hold while the economy continues to grow at a slow and steady pace. After three consecutive interest rate cuts of 0.25% by the Federal Reserve, expectations for additional adjustments in the next six months have diminished. According to statements made by the Federal Reserve Chairman, Jerome Powell, the central bank is comfortable with the current low inflation environment as well as its projected growth of U.S. GDP figures, both of which are close to 2%.
  • Jobs reports in December came in better than expected and was received well by the stock market. Meanwhile, unemployment figures continue their descent to historic lows, as the latest report decreased from 3.6% to 3.5%.
  • According to statements from the White House, “phase one” agreements between China and the U.S. are closer than they have been in previous attempts and could be reached before the presidential election in 2020.

Why are they important?

Coming off the heels of the summer months, investors were concerned that the inversion of the yield curve was signaling that softness in the U.S. economy could continue into the winter. However, three 0.25% interest rate changes by the Fed have resulted in normalization to the curve and key sources of data have reported that the U.S. is in a healthy position with low inflation and full employment. These important points have brought relief for investors in the near-term. As the U.S. economy continues to push forward, eyes now move towards the first seemingly completed trade resolution with China as well as back to stock fundamentals, such as earnings and cash flow potential.

What are the potential impacts?

Evidence is mounting that the market and the economy are now more closely aligned than in the recent past. Previously, when good economic data was announced, the market would sell-off on fears of the Fed raising interest rates. Conversely, when poor data was announced, the market would rally on hopes of the Fed reducing interest rates. Time slices such as these are referred to as “opposite days” or “upside-down markets” due to their counter-intuitive nature. However, now that the yield curve has normalized and the economy continues its pace of slow and steady, investors are back to rewarding good economic data by buying stocks instead of selling them.

The month ahead:

As 2019 ends and we celebrate an economic expansion that has graduated from one decade into the next, investors will be sure to monitor consumer spending during the holiday season. More than two-thirds of the U.S. GDP derives from personal consumption and, with record employment figures in effect, a strong holiday season would help kick off 2020 in a positive direction. However, the pending future trade agreements with China have yet to drop off our radar and these necessary agreements between the two countries will be an important milestone heading into the new year.

The bottom line:

Economic data made a decent turnaround during the latter half of the year and important reports regarding U.S. employment have made a positive impact on fears of a recession. Currently, there appears to be little evidence for a U.S. recession within the next 6-12 months. 2019 enjoyed great performance year-to-date in nearly every major asset class and, although there are legitimate reasons for the rally, investors should not get too comfortable. We will continue to monitor important sources of information as they are reported and, as always, please call us with any questions.

Until next month, have a wonderful holiday season!

 

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.