3Q 2019 Market Commentary
“Contrariwise,’ continued Tweedledee, ‘if it was so, it might be;
and if it were so, it would be; but as it isn’t, it ain’t. That’s logic.”
Lewis Carroll, Through the Looking Glass, and What Alice Found There
We live in a Lewis Carroll world, or at least it increasingly feels that way. Up is down, big is small, and the truth is getting harder to define, let alone believe or understand. Anyone who reads the morning news has likely experienced what it feels like to believe “…as many as six impossible things before breakfast.”
Granted, much of this feeling can be attributed to political discord. However, while the political dysfunction certainly isn’t helping, things feel upside down at least in part because of what’s going on with the economy. Last quarter, we wrote:
“After raising rates rather methodically since 2015, the FOMC is considering a rate cut. This is rather remarkable, considering that rates are already low in a historical context….policymakers don’t seem to think the economy can handle today’s modest rates, which would imply the economy isn’t, in fact, all that healthy.”
We wrote the above despite a strong stock market, decent retail numbers, modest wage gains, and historically low unemployment – things that persist today (though stock market volatility has increased). Each of these is associated with a healthy economy, and the Fed typically won’t cut rates when the economic outlook is good. Most analysts expect that the U.S. economy grew at an annualized rate between 1.9% and 2.1% in the third quarter, and, for the full year, the Fed expects 2.2% GDP growth. By contrast, a recession is defined as two consecutive quarters of GDP contraction.