September 5, 2019
Economic “Cross Currents” Causing Murky Waters
The markets definitely did not take a vacation this summer. Instead, they have been hard at work creating volatility. The Federal Reserve’s (Fed’s) previously identified “Cross Currents” of growth and trade uncertainties have been the primary contributor.
The Fed moved forward in lowering the overnight fed funds rates on July 31, 2019. This rate cut has significantly impacted the yield curve, and currently, overnight and three-month rates are higher than intermediate and long-term bonds. In addition, the 2 and 10-year yields are approximately equal and have occasionally been inverted, which has occasionally been correlated with recessionary activity.
At Miles Capital, we recognize that the treasury yields are also being impacted by the global rate environment and the economy is actually doing fairly well. The consumer, retail spending, non-manufacturing surveys, and unemployment remain strong. We do not foresee a recession within the next 12 months.
The market currently expects the Fed to cut rates two more times in 2019 and again in 2020. We expect one cut yet this year, possibly in October or December.
At Miles Capital our team based disciplined process helps us to navigate effectively through market conditions including volatility such as we are experiencing now.