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Quarterly Economic and Market Outlook

Greg Carr, Oct 8th 2019

Quote for the Day: “Autumn is a second spring when every leaf is a flower” – Albert Camus

Markets have done well this year. But global and U.S. economies are cooling. Despite headwinds and media headlines, a recession doesn’t appear imminent. A recession will probably not happen until late 2020, or later, if the clouds continue blowing over. Still, markets are likely to be “bumpy” in the foreseeable future as the economy cools.

Review: Historical Expansion & Strong Returns Despite Recent Pullback

The U.S. economy is now in its 11th year of expansion, the longest on record. And U.S. markets have done well this year despite a bumpy road and the most recent pullback, projected in my last quarterly report (Jul 3, 2019). The S&P 500, representing U.S. Large Company (“large-cap”) stocks, reached new highs before pulling back approx. 7%, and then resuming its climb, only about 3% below its peak now. Small-caps, foreign stocks, emerging markets, and commodities which are all included in diversified portfolios, are trailing the S&P 500 but are still showing nice gains. Growth stocks are outpacing value/dividend stocks again this year – but it appears that tide may be turning. Real Estate, which was added to our managed/advisory portfolios earlier this year, is now one of the top performing asset classes for the year. Bonds have also done relatively well this year as the Federal Reserve recently began dropping rates, causing many bond prices to rise.

Outlook: Slowing Economy and Bumpy Markets

 The economy that powers the U.S. stock markets is still moving forward, but it seems to be slowing. The Conference Board’s Leading Economic Index® (LEI) for the U.S. has been slowing for several months and saw no increase in its most recent report. Most of the participants in Bloomberg’s recent survey of economists, and the National Association for Business Economics’ (NABE) most recent Business Conditions Survey also see the economy slowing ahead.

Does this mean a recession is just across the horizon? It seems the weather is cooling and getting a bit cloudy. And the Global economy is cooling as well. Despite current headwinds and media headlines, a recession doesn’t appear imminent. Current projections at the Conference Board and the surveys noted above are that a recession will not likely happen until late 2020, or even later, if the clouds continue “blowing over.” Still, markets are likely to be “bumpy” in the foreseeable future as the economy cools.

Volatility and recessions are part and parcel of long-term investing. If you have a retirement plan and a managed portfolio with us, it has been designed with this in mind. But If you are concerned about market volatility or are in or near retirement and have not met with us in the past year, now is the time to do a thorough review of your plan, risk tolerance, and portfolio strategy. It is better to err on the side of caution and to prepare beforehand rather than to react after.

If you would like to discuss this article, please call me at 316.440.2550