Market and Economic Commentary

 

3rd Quarter 2018
Summary: Overview

 

Higher Government spending, lower tax rates, increased private sector capital spending, and record employment are all driving U.S. economic growth.  Manufacturing, industrial production and commercial construction remain strong.  Among consumers, incomes, spending and optimism are up.

Solid economic growth, low unemployment, and whiffs of inflation have given the Fed cover to raise rates as it would in a normal cycle.  Given that what we experienced in the Great Recession was anything but normal and that fed funds were at 0.0% not long ago, these data and responses are welcomed.

The yield curve has flattened but remains positively sloping.  Bond yields in the U.S. likely have put in a secular bottom.

The stronger U.S. dollar and recent weakness in international economies may be helping the Fed keep inflation in check, creating a drag on exports.

Equity markets are often challenged during periods of rising inflation and rising interest rates because market earnings multiples contract.

Recent earnings have been exceptional; those for the quarter just ended should be strong as well.  Both the Fed and consensus currently expect strong economic growth and earnings for several more years.  We will be watching earnings closely.

Indicators of the market’s health and investor sentiment appear decidedly neutral.

Download the full report in pdf here:IMVA Investment Review-October 2018

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