Author: Chad Odell

4th Quarter 2019 Market Commentary

Note: This market review was published on October 16th, 2019 and may not be reflective of current market or investing issues.

The third quarter of 2019 was a wild ride for U.S. Markets.  The S&P 500 hit a new all-time high of 3,027.98 in July only to sell off more than 6.5% by early August. Many of the risks that were influencing markets in the second quarter are still relevant today.  There has been little progress made in the trade war between the United States and China, tensions in the Middle East have continued to escalate, and the latest deadline for Brexit is less than a month away.

During the third quarter, the Federal Reserve followed through on their dovish commentary by cutting their benchmark rate by 0.25% in July and September. The future path for the Fed is still in question however.  Chairman Powell continues to say that these rate cuts are not part of a cyclical change, rather a mid-cycle correction, meaning that he would prefer not to continue to cut rates in the future.  In addition to rate cuts, the Fed also had to intervene in over-night lending markets in order to provide liquidity as there have been multiple spikes in the overnight rate due to a lack of dollar liquidity.  If the dollar liquidity issue continues, and the Fed is unable to provide sufficient capital through their current repo operations, a new quantitative easing (QE) cycle might begin.

The trade war between the U.S. and China has seen little progress with increased tariffs from both sides.  Tensions have come down over the last few weeks as a potential deal has been tentatively reached.  The deal is said to be implemented in phases with the first phase being China purchasing more American agricultural products, primarily soy beans, and the United States agreeing to stop increasing tariffs.  No tariffs have been removed at this point; however, pending the first phase of the trade deal, some tariffs have been delayed from the third quarter to the end of the fourth quarter after the holiday shopping season.

Tensions in the Middle East continue to be a significant threat, especially to the oil market.  Oil had its largest one day move in history in September following an attack on the largest oil refinery in the world, located in Saudi Arabia. The United States has blamed Iran for the attacks, which has continued to degrade relations between the two nations.  While there has not yet been a response to the attack, it is unlikely that tensions will subside anytime soon.

Over the next few months it is likely that central banks around the world will continue stimulus both by cutting rates and by resuming, or increasing, QE. Earnings for U.S. companies are likely to disappoint when they report third quarter results, which could lead to a short-term consolidation in equity markets.  As central banks continue to provide stimulus, we will likely see equity markets pick up later in the fourth quarter or early in 2020, although a global recession continues to be a viable threat.

Disclosure: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by  Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available upon request.

2nd Quarter 2019 Market Commentary

Note: This market review was published on July 18th, 2019 and may not be reflective of current market or investing issues.

U.S. Markets ended the second quarter near fresh all-time highs, but the path taken to get there was far from smooth.  We saw the return of volatility to its highest levels since the major sell-off in December 2018 with the volatility index nearly doubling to over 20 in the first half of May before slowly returning to the lower teens by the end of the quarter.1  This volatility was influenced by multiple factors, including the continued trade war between the United States and China (the two largest economies in the world), the increasing tensions in the Middle East (with Iran saying that there is no longer a path to a diplomatic solution with the United States), and the Federal Reserve’s lack of clarity on their future policy. 

The Federal Reserve has continued to hint that a rate cut is coming, but we still lack clarity on when the first one will be and how much it will be cut.  The market is currently assuming a rate cut of at least 0.25% and as much as 0.50% in July.2 If there is no cut in July, it could bring a short-term consolidation to equity markets in the U.S. as investors wait to find out what the Fed’s outlook on the economy means for risk assets.

The trade war between the U.S. and China saw talks break down in the early part of last quarter with increased tariffs from both sides.  Tensions cooled slightly after President Trump and President Xi met at the G20 summit in June and agreed to restart trade negotiations between the countries and to put any further tariffs on hold.  No tariffs have been removed at this point; however, trade talks have resumed and both sides say that there is a path to a deal.

Tensions in the Middle East continue to be a significant threat, especially to the oil market.  In the last three months there have been attacks on oil tankers in the Strait of Hormuz, for which Iran has denied responsibility. Also, a U.S. drone was shot down, for which Iran claimed responsibility stating that the drone had illegally entered Iranian airspace.  Tensions in this region continue to rise with Iran saying there is no longer a path to a diplomatic solution with the United States. These tensions arose after the U.S. decided to reimpose sanctions on Iran that had been removed as part of the nuclear agreement between Iran and the international community.

While new all-time highs are being reached in U.S. stock markets, global stocks have not fared as well since the last recession.  The MSCI EAFE index (a broad measure of international equity) reached its most recent peak in early 2018, but has yet to return to the all-time highs that were seen in 2007.3 Economies outside of the U.S. have not had the same success throughout the recovery since the Great Recession and their stock markets reflect that.

Over the next few months it is likely that China will increase government stimulation in their economy in order to combat declining growth. The European Central Bank (ECB) will likely continue their policy of easy money and could possibly increase stimulus. The Federal Reserve will likely cut rates by at least 0.25% over the next three months which will confirm their change in policy from the last rate hike in December 2018.  All of these factors could be supportive of global economic growth which should be positive for global equities. 

Sincerely,

Longview Financial Advisors, Inc.

1, 2, and 3: Information found at CNBC.com

Disclosure: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by  Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available upon request.


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