Markets Shift Focus in Q4 2019

As we look to the final months of the year, investors should be prepared for the market to shift. Here are some of the factors and insights that we’re monitoring for our investors:

A Review of the 3rd Quarter

Returns on financial assets were scattered in the third quarter of 2018. U.S. equities posted robust returns (up +7.7%), while global stocks, investment-grade bonds, and public real estate were relatively flat. Commodities and precious metals suffered losses in July through September, but crude oil and Master Limited Partnerships (MLPs) were up.

U.S. equity returns were propelled by strong corporate earnings, positive sentiment, and fiscal stimulus. The strong U.S. economy, rising inflation already at or slightly above targets, and fiscal stimulus from the recent tax cut all give the Federal Reserve cover to continue to raise interest rates and decrease its balance sheet toward more typical historical levels.

The Fed has raised rates eight times now—in quarter-point increments starting in December 2016. It’s expected to raise rates four additional times over the next year.

Again, we find ourselves in the tug-of-war that we described in our last quarterly outlook [INSERT LINK TO Q3 OUTLOOK], wherein stronger corporate earnings, rental yields, and other cash flows are being discounted at progressively higher interest rates.

So far in 2018, the positive forces have outweighed the negative forces with respect to U.S. equities. Both the Dow and the S&P 500 hit multiple record highs in the late summer and early fall.

Looking Forward to 2019

As we head into the new year, we believe our tug-of-war thesis will hold true. The contest may also shift in the coming quarters more decidedly in the direction of the negative forces. Twelve quarter-point rate hikes from December 2016 to late 2019 could possibly dampen economic activity, making it difficult for corporate earnings to continue growing at their recent torrid pace, and weigh on stock and bond valuations.

Watch our video to learn more about our fourth quarter investment outlook.

Investors interested in learning more about our perspective can visit the Curi Capital website or reach out to the Capital team directly at 919.890.0515.