Market and Economic Commentary

4th Quarter 2018
Summary: Overview

  • Economic growth in 2019 is expected to decelerate from 2018 levels but remain above the average for the current cycle. Unemployment levels are at record lows, and job openings continue to increase. Manufacturing and Construction appear relatively healthy. Uncertainty persists due to trade war overhangs. The housing market has remained cool since the summer, with higher absolute prices and higher interest rates crimping affordability in some markets.
  • The T-Bill/10-year U.S. Treasury spread has narrowed but remains positive, reflecting concern but not stress.
  • As interest rates have risen, banks have been able to increase loan growth and credit. Ceteris paribus, this trend should help drive growth in 2019 and beyond.
  • Corporate profit margins and overall profits are expected to continue increasing. Margins have turned down ahead of every recession to date, but that has yet to occur in this cycle. However, 2019 earnings estimates have started to decline.
  • With the Q4 decline in the equity markets, some measures reflect “oversold” conditions. Sentiment has turned decidedly negative. These conditions can portend a bottoming process, but they are not rules.
  • A contraction in P/E multiples generally has driven the sell-off. The S&P 500 forward P/E ratio has gone from 18.5x to approximately 15.0x over the course of the year, and it is now near the 10-year average.

Download the full report in pdf here: IMVA Investment Review-January 2019

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