October 2019 Thoughts and Insights
The past 3 months have been very busy at DTIM! First, we are excited to introduce Jennifer Workman to our team as our new Operations Specialist. Jennifer will be the first voice you hear when you call, will handle your funding requests and will support all our back-office needs. Jennifer comes with 25+ years of experience and has a master’s in finance. We have also freshened up our website so please take a look at www.dandatrouve.com when you have a chance. Lastly, we have implemented a new technology platform called Tamarac Reporting. Tamarac brings us superior data, flexible reporting capabilities, and a secure interactive client portal that we will use to share reports with you. In addition, the site will allow you to access your accounts in a comprehensive, easy to understand way (see attached memo on invitation e-mail). You will notice the reports are slightly different, but they still provide the same information.
Now, to the markets and the economy…. The third quarter was marked by the continued slowing of global economic growth, sprinkled with a healthy dose of political uncertainty. Nevertheless, equities, fixed income and gold continued to build on their gains made during the year.
In support of the markets, unemployment is at an all-time low of 3.5% although wages are not increasing, and this has been a bit of an enigma for several years. The housing market is beginning to show renewed strength and the consumer, so far, has continued to support the US economy. This September, the Fed reduced rates .25% and may again in October, which in theory, should stimulate growth.
However, the latest manufacturing readings came in very poor and border recession levels. The services readings have also declined, and so has consumer confidence. Economic data from around the globe shows slowing, especially in Europe and China.
To add, both the 3-month/10-year and 2/10-year Treasury yield curves have now inverted (meaning longer dated bonds are paying less than shorter dated bonds.) Yield curve inversions historically have often—but not always—preceded a recession. However, other commonly watched indicators, such as corporate credit yields vs. Treasury yields lower the probability of recession.
The greatest concern to the economy today is the political risk surrounding trade. The ups and downs of U.S.-China trade talks have weighed on market sentiment and posed the biggest challenge to confidence and the economy so far in 2019.
And finally, the 2020 election season is upon us and we are watching how the political landscape may impact the economy. While we seek to remain politically agnostic, we cannot completely ignore the elephant in the room. We do not see the current political atmosphere as contributing positively to the financial markets or the economy. Businesses have difficulty planning when the tax and regulatory environment remain uncertain. Once a clearer picture develops, businesses will better be able to maneuver their operations.
With these contrasting data points in mind, we continue to remain defensive, but still in the game. We are currently looking at reducing exposures to banking/financial stocks and healthcare and increasing to more utilities and dividend paying stocks. In fixed income, we sold our floating rate bonds to reduce risk. We also took profits on our TIPs and bought a shorter-term low risk fund with those proceeds. We now look to buy an infrastructure/real asset fund for broader diversification.
In summary, we see increasing warning signs in the data, but there are still a few positive developments and certain parts of the economy show strength. With the help of the recently lowered interest rates, this longest ever bull market could nonetheless continue. The final quarter of 2019 and the first quarter of 2020 will be a very important time for the markets and should provide ample evidence of whether this market will maintain its historic run.
As always, we remain dedicated to serving your investment needs according to your goals. Please call or write with any questions you may have or join us in the lounge with the beverage of your choice for enlightening discussions.