Economic Outlook

Quiet Hope And Resignation

While the second quarter was buffeted by the explosive news of Brexit, the most recent three months were characterized by a quiet and gradual return of moderate hope in the U.S. and resignation that GDP will disappoint for some time to come abroad.

The U.S. has generated several quarters of growth barely scratching 1%. A reduction in inventories has been a key driver of this tepid outcome, which actually augurs well for future performance, so long as demand does not weaken. And the business sector’s reluctance to replace its very old stock of equipment isn’t exactly helping, either. Finally, we’ve observed a rise in LIBOR, which could translate into tighter credit conditions, if sustained.

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Equity Portfolios

Stocks Marching To An Upbeat Drummer

If not quite on a tear, stocks, particularly in the U.S., continue to favor positive news over worries, be they political or economic, and the performance tables show “+” signs everywhere.

On the surface, investors appear to have been steered toward stocks by easy monetary policy – i.e., low interest rates and additional extraordinary measures by the Federal Reserve. We differ somewhat. We feel that the actual trigger has been very strong earnings growth, and the fact that stocks were very cheap at the beginning of this ride, in 2009.

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Fixed Income Portfolios

Moving Very Deliberately Toward Higher Rates

With a subdued impact from Brexit and concerns about European banks and Chinese deceleration abating (for now), the Fed elected not to raise rates in September with inflation remaining low and growth tepid. However, accelerating wage costs and general inflation heading toward the Fed’s target rate increasingly make a compelling argument for a gradually higher Fed funds rate. Our fixed-income strategy is positioned for grinding higher rates.

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