As the end of the year quickly approaches, market volatility has spiked and fear over a slowing economy, global trade tensions, and a government shutdown have taken most major global stock indexes into bear market territory. Long-dated bonds have traded (as expected) higher as the flight to quality has pushed 10-year Treasury yield to under 2.80%. Parsing out the negative news stories that continue to be the focus of concern lately, it is important to remember that our economy remains strong, employment remains at historical lows, and inflation is contained. However, for the moment, the markets are focused on negative headlines, and stocks are getting beaten down.
In economic news this week, the most anticipated Fed meeting in years ended as we predicted. The Fed raised overnight lending rates by .25%, and while the Fed comments were dovish with respect to anticipated future Fed hikes, the market wanted more. The lack of the so-called “Powell putt” to soothe the markets increased selling throughout the week. However, if the Fed focuses on the data, we don’t foresee 3 or 4 rate hikes next year.
The Fed’s favorite gauge of inflation, the Personal Consumption Expenditure (PCE), came in as expected on Friday, yet another reason to support not raising rates any time soon.
In housing, buyers and sellers are working well together to make a deal and lenders remain committed to closing loans, a major source of revenue for most non-money center banks.