It’s hard to believe but we are almost to the halfway point of 2019—to be exact, July 1st is the actual midpoint. And so far, it has been an interesting year in the market. Just a quick checkpoint/recap…
Rebounding from fears of recession, the market shot up in January 2019, only to reverse on trade fears, and then recover on hopes that the Federal Reserve will cut interest rates:
The Federal Reserve entered 2019 considering additional rate hikes, but changed their tune in January, and now may be considering rate cuts. According to JP Morgan, “This…chart shows long-term inflation expectations versus the fed funds rate. Historically, when long-term inflation expectations converge with the fed funds rate, it has been a signal that current monetary policy is too tight and rate cuts are required. In this week’s meeting, the Fed must justify why “insurance” rate cuts are necessary without providing a negative signal to economic participants – a challenging balancing act. Furthermore, when the Fed begins cutting interest rates it is difficult to stop. Over the last 30 years, whenever the Fed has cut rates it has followed it up with another rate cut within six months 81% of the time.”
If the Federal Reserve begins to cut rates, economic growth would possibly be supported longer, allowing this expansion to, in July 2019, officially become the longest economic expansion on record:
While a record breaking expansion is worth celebrating, dark clouds are gathering on the horizon, with leading economic indicators starting to flag as shown on this dashboard from Clearbridge:
It will be interesting to see the second half of 2019 unfold—possibly with numerous twists and turns (trade and elections come to mind!). Given the wide range of potential outcomes, we continue to urge our clients, friends, family, and generally anyone who will listen to review their portfolio carefully to be sure the current riskiness of their assets matches their ability/willingness to handle the potentially wild ride!