This year continues to be a rewarding one for stock and bond investors alike. Despite the uncertainty introduced by an unresolved trade war, large-cap U.S. stocks closed the month slightly positive. Other types of equities followed a similar pattern. Indices for domestic small-cap stocks, developed international stocks, and emerging market stocks were also positive for the month.
On September 18th, the Federal Reserve announced a cut to policy interest rates by another quarter of one percent, bringing the Federal Funds Rate target range to 1.75%-2.0%. This is the second time they have voted to cut rates in 2019. Among other factors, falling interest rates on new bond issues have made existing bond portfolios appreciate in value, helping investors.
The Trade War
Reports emerged in the financial news that the administration was considering limits on domestic investors accessing Chinese financial markets, including a possible prohibition of federal government pension plans holding Chinese securities. The market’s initial reaction was negative, but not dramatically so, as various financial market prognosticators questioned the viability of such plans. The White House later downplayed this prospect. While questions remain about whether the administration is serious about such a proposal, it does signal that the trade war with China continues with no end in sight. The Congressional Budget Office released estimates that tariffs have led to a 0.3% reduction in GDP.
The good news is that the U.S. economy is still growing. While recent data on U.S. manufacturing has been weak, the services sector continues to be strong. The Bureau of Economic Analysis released its third estimate of the second quarter Gross Domestic Product (GDP) growth rate, confirming that the U.S. economy expanded at an inflation-adjusted annual rate of 2.0% from the first quarter of 2019. While this level of growth is modest, modest growth is still growth. Lastly, we consider the odds of a U.S. economic recession in the next three months to be quite low.
For readers concerned about a recession, a recording of our 10/2/2019 Webinar, “How Likely is a U.S. Recession?” is available to view, and we encourage you to tune in to hear more of our thoughts on this topic: