- The Federal Reserve (“Fed”) delivered two rate cuts during the quarter, but investors are more focused on whether the Fed’s toolkit is sufficient.
- We expect the margin of safety to edge down as the record expansion ages, increasing volatility.
- Risks are skewed towards lower growth, but we don’t see a recession yet.
The market got its wish for some help from the Fed as policymakers lowered the federal funds target twice in the quarter. The S&P 500® set another record but stocks saw outflows as bond buyers flooded in. Inflation expectations softened, and growth projections barely budged. This raised concern that conventional policies may be less effective this time around.
Economic headwinds going into the fourth quarter are led by the global trade war and subsequent uncertainty as global supply chains are disrupted. On the bright side, lower rates are boosting housing, and the employment picture is solid. The same can’t be said for businesses where the outlook darkened in the quarter as uncertainty dampened investment. Global manufacturing hit the skids with both the United States and Europe toying with a contraction. Global trade slowed, and more tariffs are slated for the fourth quarter, hitting consumers for the first time. Analysts expect a year-over-year decline in earnings for the third quarter in a row. We don’t see an easy fix and expect continued pressure in the fourth quarter.