What a difference 60 days makes.  It wasn’t that long ago when the tariff fight was in full force dominating the daily headlines resulting in directionless markets.  With really no hope for a deal, recession fears were starting to build based on a slowing global growth picture.  Investors were pouring into bonds like they were going out of style and the low volatility/defensive portions of the equity markets were investors preferred hiding place. Granted, things are still not resolved, but there is a little more clarity today than yesterday causing a change in sentiment.  We are a few weeks away from seeing a “phase 1” completion of the trade deal which has been all the news the market needed in order to reignite animal spirits early in the fourth quarter.   As we write, the S&P 500 has hit a new intraday high.

On top of the tariff fight de-escalation, the Federal Reserve seems to be more in tune with what is going on globally and continues to keep additional interest rate cuts on the table.  The Federal Reserve is one of more than thirty central banks around the world joining the rate cut parade in 2019.  This global synchronization of monetary easing will add support to the markets through 2019 and early 2020.  As we write, we have a Federal Reserve meeting later this week with a rate cut announcement expected to take place along with a current assessment of the economy.

S&P 500 earnings for the third quarter have been stronger than expected.  Of the 200 companies that have reported so far, 78% have exceeded expectations.  Earnings growth year over year, although mildly negative, isn’t as bad as originally projected.  Corporate executives are not mentioning recession that often and are surprisingly upbeat about the economy.  In fact, some institutional investors are calling for a rebound in corporate earnings in 2020 due to a synchronized global business cycle recovery.  We believe this is the best-case scenario, however, we remain mindful that the stars must align perfectly on a trade resolution in order to have this flow through to the corporate sector. 

With all the positive news on trade and Federal Reserve positioning, we can’t forget other positives developing around the world like Brexit and the potential deal being constructed to officially divorce from the EU.  In addition, we have a U.S. Treasury yield curve that is no longer inverted with the longer end of the curve rising on the back of positive developments in trade.  The spread between the 2-year and 10-year treasury is about 20 bps which is far wider than just several weeks ago ebbing recession fears for the time being.

The bottom line, we have more clarity in sight than we did just a couple months ago.  It has paid off to stay dedicated to a diversified investment strategy that matches one’s long-term goals and objectives as opposed to adjusting course based on daily headlines.