Fall 2019 Investor Letter: Soft Versus Hard Economic Data

In the third quarter many factors contributed to heightened market volatility that tested the patience of investors. If one simply read the headlines this year, they might have adopted a pessimistic market outlook and completely missed the 20% gain in U.S. stocks through the first nine months of the year. A few factors contributing to the volatility are listed below.
  • The trade and tariff issue received heightened attention again when, on August 1, the Trump administration proposed a further increase in tariffs on virtually all China product imports. The equity markets reacted negatively to the news, resulting in the S&P 500 falling roughly 6 percentage points from the quarter’s high price to the quarter’s low price. In total though the S&P 500 Index did returned 1.7% in Q3. Although third quarter returns were negligible in many asset classes, both equity and fixed income investors have been rewarded for the year to date period with double-digit returns in most of the asset classes.
  • Economic weakness is mostly centered in the so-called soft economic data versus the not so weak hard economic data. Most of the recession talk has been centered around the ‘soft’ economic data.
  • In July, the Federal Reserve cut interest rates for the first time since 2008 and then a second rate cut in September. The market volatility increased as a result of uncertainty around the magnitude and number of further rate cuts. With interest rates falling and earnings growth resuming, the equity risk premium is widening.
More insight on our views are covered in the Investor Letter accessible at the below link.

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