Third Quarter 2019 — Arthur Swalley, CIMA
The increase in volatility in both stocks and bonds which began in 2018 continued in the third quarter of 2019. Long term interest rates around the world continued their dramatic fall. Stock markets remained range bound with rapid short-term swings fueled by quick reactions to rumors about trade deals, and ongoing political instability. US stocks finished the quarter in an uptrend as corporate earnings are generally stable and healthy, with US consumer sentiment remaining strong.
While the Federal Reserve lowered the Fed Fund rate by another 0.25% to 2.00%, the US yield curve remained inverted. The 10-year US Treasury note touched 1.42% and the 30-year US Treasury bond touched an all time low of 2.00%, reflecting lower economic growth expectations. Another factor in the rapid decline in rates was the influx of foreign buying caused by the hunt for yield from markets with negative interest rates. Currently, over 75% of international government bonds are trading with negative interest rates! The long-term economic ramifications of this trend remain to be seen, but global investors are clearly prepared for slow to negative growth rates over the foreseeable future.
Political instability around the globe ramped up in the third quarter, with Hong Kong protests, Brexit, and the US presidential impeachment inquiry dominating headlines. All of these issues are expected to continue to generate alarming headlines and short-term market swings, especially as the 2020 US presidential elections approach. At Arlington, we are continuing to shepherd our clients’ assets with a conservative posture, with a focus on the long-term growth of global business as our primary mission. We think it is vital to not get caught up in the exciting, short term market action generated by headlines, and remain committed to fundamental analysis and non-emotional behavior during periods of upheaval.