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Market Update October 18, 2019

Market Update October 18, 2019

October 18, 2019
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At 401k Engineers, it is important to us that you are well informed about what’s happening in the markets. Here are a few of the key topics of conversation that we feel deserve the most attention this month. If you have any questions or would like to continue the conversation, let us know, and we appreciate the opportunity.

Improved trade negotiations ease market concerns while the Fed prepares for an additional rate cut.

What’s going on? It appears that the US and China have reached a meaningful agreement on trade, with final details planned to arrive by November. The agreement states that China will buy a large sum of agriculture products such as soy and corn as well as open some previously closed economic gates to the US. In return, the US is putting its planned mid-October tariff increase on hold.

Why is it important? The current White House administration is motivated to keep the US economic and stock market narrative optimistic heading into election season, and a trade resolution is their most potent tool to do so. While many issues have yet to be resolved between the two countries, the agreement signals that the Chinese are interested in negotiating a resolution before the 2020 election.

What do we think about its impact? Federal Reserve Chairman, Jerome Powell, stated that “trade policy seems to be playing a role in the global slowdown” while acknowledging that monetary policy can and should take that into consideration. Although the futures markets are anticipating an additional .25% rate cut in December, if trade progress continues into 2020 and economic data improves, the Fed may feel comfortable leaving rates alone while the data recovers.

The month ahead: Since 1977, the Federal Reserve has operated under a triple threat dual mandate of seeking maximum employment, stable prices, and moderate long-term interest rates. Currently, labor markets are keeping their momentum as unemployment is at a generational low of 3.5%, prices in the aggregate are stable relative to wages and the Fed’s inflation target, and long term interest rates are moving closer to their average since the two most recent rate cuts have occurred.

The bottom line: The U.S. economy continues to be driven by a strong and productive workforce. Currently, we do not see evidence for a recession within the next six to twelve months. Moving into Q4 and early 2020, accommodative interest rate policy from the Fed as well as trade progress could act as a tailwind. As events unfold, we will be actively monitoring critical sources of data for any changes that might arise.