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Q3 2018 Quarterly Commentary

  • US markets, especially growth, lead the way globally over the third quarter.

  • From a relative strength perspective, our asset allocation models rank the asset classes in order from strongest to weakest as follows:

    • Equities: US Large Growth, US Large Value, US Small Cap, International Developed, International Emerging Markets
    • Fixed Income: High Yield Corporate Bonds, Corporate Bonds, Treasuries
  • From a valuation perspective, US markets remain highly valued according to historically reliable measures of fair value. This implies below average returns over the next 10-12 years.

  • Fed policy continues to tighten and will eventually create credit concerns.  We expect a yield curve inversion and widening in corporate spreads if the Fed moves too far.

  • Economic growth remains robust in the US.  We do expect growth to slow from here as suggested by the ECRI Weekly Leading Index.

  • Intermarket trends were positive for risk assets until the start of the fourth quarter.  Risk aversion is coming to light now with recent volatility.

  • We ended the quarter with 2 of the 4 components of our framework flashing red.  Since the start of the fourth quarter, intermarket trends are now flashing red as well.  

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