In last quarter’s investment report, we anticipated that market volatility would continue, as the trade war escalated and the Federal Reserve continued to raise interest rates. This volatility proved to be most pronounced in emerging markets, with that index down 23% from its recent high. China’s deleveraging process has slowed growth in the region, just as larger US tariffs on China’s goods have started to come into effect. The slowdown in emerging markets has been more pronounced in the weaker economies, which have high levels of large US denominated debt and are now dealing with higher inflation and slowing growth. In Q3 2018, most US equity investors were largely unfazed by higher interest rates, with the broad US equity indices up 8-10%. This appeared driven by another quarter of +20% growth in corporate earnings for US stocks. However, on October 9th, the IMF cut its 2018-2019 growth forecast for the global economy from 3.9% to 3.7% and US stocks quickly pulled back 7%. While the IMF growth target was only slightly below its earlier estimate, many investors started to question if the Fed’s interest rate moves were a root cause of the market’s decline.
To continue reading, please click here: