Market Resilience

Market Resilience

With less than 30 days until the new year begins, investors who stayed the course have been rewarded for their perseverance. From government bonds to emerging market stocks, virtually all major categories of investments have delivered positive returns this year. But these gains have not come without volatility and the US trade war with China continues as the central cause of it.

Trade Disputes

In October, the administration announced a proposal for a phased reduction in tariffs, putting negotiations on a positive path. Investors approved of this “phase one” deal with China. Their mood, however, soured after this first-step agreement fell through and White House officials said they may wait until after the 2020 presidential election to sign any final deal. In stark contrast with phased reductions, Dec. 15th marks the date of a scheduled tariff increase on $160 billion of Chinese imports.

While the trade war with China is the most consequential issue and the one that most holds the attention of market participants, other trade disputes have surfaced. The US announced new tariffs on metal exports from Brazil and Argentina and threatened to apply tariffs on French consumer products such as champagne and cheese in response to a new French digital services tax affecting US technology companies. At a time when foreign affairs are unpredictable, it’s easy to lose sight of what is working.

The Federal Reserve

As previously noted, the Federal Reserve revealed a positive outlook. US GDP growth remains positive, unemployment remains historically low, and inflation is benign. As always, there are some negative signals, too. Corporate profit growth, for example, is stagnant and global manufacturing is in a slump. But broad economic data remains more positive than negative. The Fed, which lowered their short-term policy rate three times this year, signaled in November that favorable economic data suggested a “sustained expansion” of the US economy was likely. For our part, we do not have major concerns that a recession is imminent.

While 2019 draws to a close and positive economic data seemingly trumped the affects of trade disputes, there is still work to be done. Although it will be harder to harvest capital losses in such a strong year for stocks and bonds, we will be still be looking for those opportunities in client accounts.

We wish all of you a happy holiday season and look forward to seeing you next year.

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