Key Takeaways

  • The Fed Is ‘On Deck’ & Investors ‘Cheer’ For A Rate Cut
  • ‘Change-Up’ in US-China Trade Negotiation Tactics
  • Next Week Is The ‘Major Leagues’ for Economic Data

The 115th World Series began this week, the culmination of a 162-game regular season. While this season is long relative to other sports, the Investment Strategy season never ends. We are constantly evaluating economic and market data and ensuring that our forecasts, strategies, and outlooks are prepared for ‘primetime.’ From a strategy perspective, we have had several ‘homeruns’ this year such as our call on technology (33.7% Year-To-Date (YTD)), but we have also been thrown some ‘curveballs’ in regards to trade and geopolitical risks. While our role is surely relatable to “America’s pastime,” so too is the current state of the economy and financial markets.

The Fed Is On Deck | Investors are hoping that the Federal Reserve will ‘step up to the plate’ and cut interest rates at the October Federal Open Market Committee (FOMC) Meeting next week. The financial markets are currently pricing in a 96% probability of a cut at the meeting, and a 28% probability of two or more rate cuts before year end. To us, the number of rate cuts is less important than the ultimate result. Our base case is that the Fed has enough ‘firepower’ to implement additional ‘insurance’ rate cuts to extend the current record economic expansion (127 months) for the foreseeable future. Our confidence in the Fed’s ability to ‘swing for the fences’ and extend the economy’s record run is the primary reason we have an optimistic outlook for US equities, which is reflected in our 12-month S&P 500 target of 3,127.

Playing Trade Hardball? | President Trump’s language regarding trade agreement ‘phases’ seemed to come ‘out of left field’ given his traditional ‘all or nothing’ and ‘deal or no deal’ rhetoric. The sudden ‘change-up’ in negotiating tactics is likely due to economic growth concerns and the impeachment inquiry, both of which are negatively impacting his poll numbers and may hamper his reelection prospects. President Xi is facing his own pressures, as China’s 6.0% 3Q GDP growth marked the lowest quarterly economic growth rate since their records began in 1992. Any negotiations that lead to a truce or indefinite postponement of the tariffs could put both countries in the ‘win column,’ with the US consumer proving to be the biggest ‘fan.’ Recent signs of progress from both sides suggest that President Trump and President Xi want to ‘play ball’ and have a formal signing of a Phase One deal at the November 14-15 APEC Summit in Chile—a positive for global equity markets.