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Q4 2018: Economic Commentary

Global financial markets posted mixed results during the third quarter of 2018 as investors balanced heightened trade tensions globally with strong earnings, a solid labor market and healthy economic growth here in the U.S. We present a few highlights from the 3Q18 below:

  • Despite heightened geopolitical rhetoric, the S and P 500, the Dow Jones Industrial Average and the technology-heavy Nasdaq Composite continued to trade near record highs amid solid economic data and strong corporate earnings. On the economic front, the Federal Reserve held interest rates steady at a range of 1.75% to 2%. However, meeting minutes released from the Fed’s early August session indicated a rate hike was likely when the Fed meets September 25th-26th.
  • Developed international equity markets produced mixed results during the third quarter with those in the Pacific ex-Japan region generally lagging those in Europe. On the political front, the resignation of Brexit secretary David Davis renewed fears of the potential economic consequences as the UK prepares to leave the EU in March 2019. In the emerging markets, returns were held back by weak performances from China and Brazil.
  • Within fixed income, results were mixed as the 10-year U.S. Treasury tested the key psychological level of 3% several times during the third quarter. Foreign un-hedged bonds and emerging markets debt fell amid the strong U.S. dollar. Investment grade core U.S. fixed income produced lackluster results, while high yield credit fared marginally better.
  • Real estate, both in the U.S. and abroad, advanced during the quarter. Similar to the prior quarter, global real estate underperformed U.S. real estate. Commodities ended the quarter lower as metals and soft agriculture prices were weak. Meanwhile, upbeat sentiment in the MLPs space was supported by positive operating results and fundamentals.

An important lesson from 3Q18:

  • The third quarter of 2018 was a good reminder that investors must remain mindful of geopolitical risks and the associated volatility that comes with it. The third quarter was marked by heightened global trade rhetoric and ongoing posturing on tariffs. In the U.S., politics is now front and center as we approach the November mid-term elections, leading many to wonder if select policy decisions or election outcomes can derail financial markets. As we approach year-end, it is more important than ever to remain properly diversified. It is our continued belief that remaining patient and adhering to a well-constructed and diversified investment portfolio anchored to your time horizon and goals remains the prudent course of action.

 

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