Markets and Investing
January 30, 2019
As was generally expected by pundits, today the Federal Reserve (Fed) indicated future interest rate hikes will be dependent upon some stabilization in economic momentum and softened its flexibility on the quantitative tightening program (also known as the reduction in the Fed balance sheet). Investors generally cheered the statement, with the S&P 500 finishing today at the highest price since mid-December. This was supported by lower bond yields, reflecting the Fed’s more dovish or “data-dependent” position on interest rate policy. We also saw a lower U.S. dollar, which supported non-U.S. asset prices.
It is not yet clear how long the Fed will remain “patient” on future interest rate normalization. During his press conference, Chairman Jerome Powell refused to state a specific time frame for this pause, focusing instead on the evolving economic and financial market data. We believe it is likely the Fed will be able to resume interest rate increases at some point this year if the stock market stabilizes and economic data improves. The Fed also continues to closely monitor actual and expected inflation trends in the United States.
We remain focused on the trend in economic data in the United States and globally. Our analysis indicates the global economy is on a path of a re-synchronized slowdown and odds of a recession also remain modest globally and low for the United States. We are maintaining our balanced assessment of risks between stocks and bonds, which is guiding our recommendation to hold stock and bond allocations close to long-term strategic target allocations. This reflects the higher levels of realized volatility across the global equity markets and the increase in interest rates relative to year-ago levels.
As always, we value your trust and are here to help in any way we can. Please do not hesitate to let us know if we can help address your unique financial situation or be of assistance.