Quarterly Market Update

We hope you are enjoying your start to the fall season and had a pleasant summer.

The predominant market topics for the most recent quarter were: more rounds of tactical negotiations between Chinese and U.S. diplomats; monetary easing with another Federal Reserve interest rate cut; a formal impeachment inquiry launched at President Trump; continued strong and positive indicators of the U.S. consumer; tensions with Iran enduring; and new developments in the controversial Brexit saga.

The U.S. and China are set for the next round of trade talks in Washington, D.C. in mid-October. This will be the 13th round of negotiations which have featured tariffs and the blacklisting of companies among trade policies. Talking points covered in recent negotiations include protection of intellectual property and China continuing to enjoy status as an emerging market nation with the World Trade Organization (WTO).

The argument presented by U.S. officials is that as the world’s second largest economy and one with a sizable number of billionaires, not graduating as a developed nation in order to receive the accommodations that nations like Zimbabwe and Rwanda receive is purposefully and wrongfully deceitful. Recent countries to graduate emerging into developed status include Lithuania and Latvia.

The Federal Open Market Committee (FOMC) held its latest meeting in September and cut interest rates by .25%. Despite external pressure, Fed Chair Jerome Powell has been reluctant to predict more rate cuts.

Domestic consumer spending, which has been growing steadily in recent times, was up slightly in September. Consumer driven companies like Walmart, Target, and Nike delivered strong earnings this quarter. Both Walmart and Target added comparable stores’ sales growth, but a big surprise to expectations was the growth rate for online sales. After a short drop in August, consumer sentiment rose in September. The Bureau of Economic Analysis (BEA) reported an unchanged low unemployment rate of 3.7% in August and jobs added rose by 130,000, most notably in health care and financial services.

Annualized inflation edged up to 1.8% this quarter, closing in on the 2.0% target set by the central bank. Lastly, U.S. housing starts increased to the highest levels seen since before the housing bubble, although they are still relatively muted compared to the 2005-2006 highs.

Iran was accused by multiple sovereignties of orchestrating a drone and cruise missile attack on Saudi Arabian firm Aramco’s oil fields in September. Aramco is Saudi Arabia’s largest oil producer and the attack temporarily cut off around 50% of the company’s production. President Trump took to Twitter to announce increased sanctions on Iran in September and considered a military strike on the Iranian manufacturing facility where the weapons were allegedly made.

Brexit is heating up as the October 31 deadline approaches. The opposition party is positioning itself to take a no-deal off the table and bring about a possible delay to the incumbent deadline. Meanwhile, the conservative party led by Prime Minister Boris Johnson, remains set on a deal or no deal come October end. There is a law in place that requires the government to ask the EU for an extension to the Brexit deadline by October 19th, contingent on whether a deal is inked at the next EU Summit on October 17-18. Mr. Johnson has been unclear on how his government plans on bypassing the law. We are awaiting the outcome of a potential deal at the EU Summit in mid-October.

A strong U.S. consumer combined with low inflation, low unemployment, in a low rate environment will continue to fuel a domestic market that continues to produce healthy signals. While several geopolitical risks remain on the horizon, we feel the U.S. market is poised for a strong finish to the year.

We hope you enjoy the change of season and as always, please do not hesitate to contact us with any questions or to check in on your accounts.