3Q 2018 Market Commentary
- The Global economy slowed down during the third quarter, as economic growth became less synchronized across the world.
- The US economy continued to deliver strong performance in the third quarter, in contrast to other developed economies, as underlying economic activity continued to show strong momentum.
- The Developed Market economies saw moderated growth in the third quarter, with trade conflicts and political turmoil as ongoing concerns.
- The Emerging Market economies have faced headwinds in recent periods due to a strengthening US Dollar, trade tensions, and geopolitical concerns.
- The Gross Domestic Product forecast is 3.9% for July through September, down from 4.2% in the second quarter, according to the GDPNow model.
- Inflation slowed, with headline and core CPI inflation at 2.3% and 2.2% in September, respectively, but the overall upward trends still provide support for the Federal Reserve’s hawkish stance to continue raising rates.
- The Federal Reserve raised the target range for the fed funds rate by 0.25% in September to 2.00% - 2.25%, which was expected by market participants.
- Global equity markets climbed higher during the third quarter despite ongoing trade concerns and political turmoil.
- The US equity market mostly advanced on strong earnings results, positive economic growth, and normalized trade relations with Canada and Mexico, despite lingering rate hike concerns and a growing trade dispute with China.
- International equity markets’ performance diverged, with developed markets rising but emerging markets continuing to suffer from tightening financial conditions and capital flights due to the stronger US Dollar.
- The US Treasury yield curve experienced a volatile quarter, flattening further, but then sharply steepening by late September.
- The US bond market was flat during the quarter, as interest rates rose but credit spreads tightened, offsetting the loss from rising interest rates.
- Robust labor market conditions, strong private consumption, and fiscal stimulus policies have boosted economic activity so far this year.
- Continued divergence between US and global economic conditions, as well as a further upside surprise in US inflation, are probably the most significant potential sources of volatility in the global financial markets in the near term.