Q3 2019: NEWSLETTER

Private ClientsInstitutions
Written By Towneley

As we head into the final quarter of 2019, we do so with some concern about recent fiscal and monetary policies being employed in the U.S. We discuss the potential pitfalls of Modern Monetary Theory in our Third Quarter Commentary that accompanies this letter. On a positive note, volatility in the domestic equity market (as represented by the CBOE Volatility Index VIX) is currently more than 40% below its overall long-term average, and below its 29-year historical average for the month of October. However, with a great deal of economic uncertainty continuing to spook investors, we expect market volatility to rise as new information about issues such as the U.S.’s trade war with China and the Fed’s next move on interest rates, is revealed.

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On the morning of Saturday, October 7, Hamas launched a surprise attack on Israel killing hundreds and plunging the region into further conflict. Israel immediately declared war on Hamas, responded with air strikes, and called up 300,000 army reservists. The U.S. and many U.N. Security Council members have condemned the attacks by Hamas, which is designated a terrorist organization by many major countries, and are providing assistance to Israel including the positioning of a U.S. aircraft carrier in the Eastern Mediterranean. The situation is evolving and we all hope for a return to stability in the region, and especially for the continued safety of civilians and any friends and family that might be impacted.

STRENGTH IN TECH OVERSHADOWS MACRO HEADWINDS
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On the back of a robust labor market and declining inflation, global markets experienced a strong first half to the year, with the Russell 3000 increasing 16.2%, MSCI ACWI-EX US up 9.5% and Bloomberg Aggregate Bond Index up 2.1%. The story for the year has been the resurgence of technology stocks following a challenging 2022, with the “Magnificent Seven” leading the market higher and accounting for roughly ¾ of the gains YTD.

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The federal debt limit is again in the news as the country rapidly approaches a critical deadline on June 1. Investors are understandably nervous about Washington failing to reach an agreement.

BANK FAILURES TRIGGER LENDING PULLBACK
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Following a challenging 2022, markets rebounded during the first quarter of 2023. Domestic equities rallied 7.2% and non-U.S. equities earned 6.6%.

ECONOMIC AND MARKET REVIEW
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2023 couldn't arrive quickly enough, as one of the worst years in U.S. stock and bond market history came to a close. 2022 will be remembered for the following events:

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Investors faced historic challenges during the first quarter as domestic equity markets fell into correction territory following an exceptional two years of performance.

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As we ring in 2022, we can't help but feel like we're facing a rerun of the past.

Towneley
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Q2 2019: NEWSLETTER