The Markets Rebound as Trade Tensions Cool

Here is a look at what’s happening in the markets both here and abroad, as well as key factors we are watching:

Economy

• Brown reports that recent economic data have been mixed, reflecting continued strength in consumer spending, but general weakness in manufacturing. Fed Chair Powell noted that businesses report that trade policy uncertainty has discouraged them from further investment.
• Strong household sector fundamentals should continue to support consumer spending growth and offset weakness in other sectors, Brown adds, but a deterioration in labor market conditions would shift that outlook.

Equities

• Overall, Joey Madere, senior portfolio strategist, Equity Portfolio & Technical Strategy, and his team maintain a generally positive bias toward equities. Madere notes it is too soon to tell whether the recent improvement for cyclical sectors, like banks and industrials, is sustainable – however, if the trend continues for these deep cyclical sectors and former leading sectors rebound, he sees this movement as a market positive.
• He expects the third quarter to end with flattish earnings growth, however, he does expect more supportive growth from the average stock, led by companies with more exposure to the U.S. and less exposure to overseas markets.
• While overall the technology sector is faring fine, the tech-heavy NASDAQ has underperformed slightly due to former leaders, like software and IT services, falling slightly as former lagging sectors, like semiconductors and hardware, perform above their norm.
• Madere sees earnings season and the upcoming trade talks as the most important influences to monitor in the coming weeks and expects any market reaction to impeachment proceedings to be short-lived. He views short-term volatility as a buying opportunity.

Fixed income

• The federal funds rate is now in the 1.75%–2.00% target range. Drabik believes there is a high probability that central bankers will cut once more before the end of the year.
• With many economic and geopolitical factors at play, interest rates have fluctuated from week to week. However, Drabik believes the long-term outlook continues to reflect lower rates as, for example, the 10-year Treasury has rallied and pushed rates down 35% year-to-date.

International

• Year-to-date, 46 central banks around the globe have cut interest rates. In addition, key banks such as the European Central Bank (ECB) have announced yet another asset purchase program, Drabik reports. The combined balance sheets of the ECB, Fed, Bank of Japan and People’s Bank of China have ballooned to nearly $19.4 trillion. This has been a key factor in bringing interest rates down and will continue to affect rates as long as this accommodative monetary practice continues.
• Despite continued uncertainty over Brexit in the U.K., the pan-European equity markets in September had their best monthly performance since June, reports European Strategist Chris Bailey. He says this was aided by the European Central Bank’s quantitative easing efforts.
• Chinese economic data continued to slow during September, and the country’s policymakers also loosened policy around both monetary and fiscal initiatives. Local Asian markets were buoyed by perceived warmth between the U.S. and China regarding trade, and a trade deal between the United States and Japan was signed.
• Global markets continue to offer typically lower valuations and higher dividend yields, says Bailey, although they are based in economies where global investors remain concerned about the potential for future growth.

Bottom line

• Madere recommends that investors keep an eye out for buying opportunities during potential volatility related to impeachment proceedings.

As trade negotiations and global affairs progress, your advisor will continue to watch for movements that may affect your financial plan. In the meantime, please reach out to him or her if you have any questions.

Investing involves risk, and investors may incur a profit or a loss. All expressions of opinion reflect the judgment of the Research Department of Raymond James & Associates, Inc., and are subject to change. Past performance is not an indication of future results and there is no assurance that any of the forecasts mentioned will occur. The process of rebalancing may result in tax consequences. Economic and market conditions are subject to change. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. The Russell 2000 is an unmanaged index of small cap securities. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. The Purchasing Managers Index (PMI) is a measure of the prevailing direction of economic trends in manufacturing. An investment cannot be made in these indexes. International investing involves additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets. Small and mid-cap securities generally involve greater risks. Companies engaged in business related to a specific sector are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. The performance noted does not include fees or charges, which would reduce an investor's returns. Asset allocation and diversification do not guarantee a profit nor protect against a loss. Debt securities are subject to credit risk. A downgrade in an issuer’s credit rating or other adverse news about an issuer can reduce the market value of that issuer’s securities. When interest rates rise, the market value of these bonds will decline, and vice versa. U.S. Treasury securities are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. The yield curve is a graphic depiction of the relationship between the yield on bonds of the same credit quality but different maturities. Chris Bailey is with Raymond James Investment Services. Material prepared by Raymond James for use by its advisors.

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