Q3 2019 Insights

November 8, 2019 · Insights

How did the markets do?

Global financial markets generated mixed returns in the third quarter. U.S. equity returns were broadly positive, as were fixed income returns, while smaller-cap U.S. stocks and international equities were slightly negative.
Trade tensions between the U.S. and some of its key trading partners continued to cause turbulence in markets as hopes of reaching deals ebb and flow.
After reaching all-time highs in July, stocks retreated sharply as the Federal Reserve announced a lower-than-expected rate cut. Trade negotiations got back on track in early September and the Fed delivered an additional rate cut, which helped stabilize markets.
Global government bond markets delivered positive returns as yields generally declined, which benefited corporate bond prices, as investors were willing to take on additional credit risk in return for higher yields.

The global economy, mired by uncertainty around trade, is losing its momentum.
Companies are postponing investment and central banks are trying to support their economies with ultra-low (if not negative) interest rates, at least until some of these uncertainties are resolved.
While the American consumer, the main driver of U.S. economic growth, is in relatively good financial health, wage inflation has peaked, and sentiment is waning.
European economies, especially Germany, have been caught in the crossfires of the various trade conflicts around the globe.
We anticipate future long-term returns to be positive, but lower than historic averages, and encourage tempering return expectations.

Based on its 20-year average, the U.S. stock market appears slightly overvalued. In both growth and value stocks, we continue to emphasize strategies that focus on quality and profitability, as we look to invest in companies that better protect against downside movements in the overall market.
We continue to slightly overweight international equity relative to U.S. equity, within clients’ investment guidelines.
As we anticipate higher levels of market volatility, we are further rebalancing client portfolios from equity to fixed income (where appropriate). Similar to our approach to equity investing, we are also gradually shifting portfolios toward higher quality fixed income assets.
Given the potential for more risk-off swings in the market, we are working to ensure there is adequate liquidity in client portfolios to meet any near-term needs.
Between now and the end of the year, mutual funds will be distributing year-end income and capital gains, which will provide us with liquidity to re-deploy in opportunistic areas.

The U.K. has been given another three months to reach consensus on Brexit (through a general election), with no clear resolution in sight.
China and the U.S. have still not come to an agreement on the main sticking points of the trade war.
Meanwhile, Hong Kong, Ecuador, Chile, and Lebanon join the list of nations with ongoing political unrest.