While the S&P 500 and Nasdaq were both up 20+% for the year through the third quarter and hover near all-time highs, investors have been tense as uncertainty over the impact of ongoing trade tariffs and the threat of new ones remains heightened.

Global growth has slowed, with the International Monetary Fund (IMF) estimating that trade tariffs and disruption of the highly efficient, $7T global supply chain could cut .8% off global GDP growth by 2020.

The U.S. and China trade war has gone on for 18 months, with the world’s two largest economies slapping tariffs on billions of dollars of each other’s goods. (China accounts for 28% of global GDP while the US is just 10.5%. China’s estimated GDP growth rate of 5.8-6.1% dwarfs the US’s annualized ’19 GDP growth rate of 2+%.)

US manufacturing – just 11-12% of our GDP — has taken the biggest hit, with manufacturing activity at its lowest since 2009.Yet the consumer, who accounts for nearly 2/3’s of US GDP, has continued to spend, with near-historic low unemployment of 3.7%, steady wage increases, strong housing numbers, and ongoing strength in retail sales.

The Fed, not worried about inflation, but concerned over global slowing and possible spillover effects on the US economy, cut interest rates twice in 3Q, the first time since 2008, providing support for the US stock market. They, and central banks around the world, have stated their readiness to cut rates and take other actions should more signs of economic weakness emerge.

But tariffs loom large, and while the US stock market has outperformed international markets this year, we remain vulnerable to the sudden Presidential tweet; the fear of more and damaging tariffs is not far from the surface. At this writing, there is a truce of sorts to hold off on further trade war escalation; but as we have seen many times this last year-and-a-half, that could change without warning.

That likely means more market volatility and recurrent worries over recession possibilities. However, because recessions are usually caused by the Fed raising interest rates to slow an overheating economy and to prevent inflation, that does not seem likely here: inflation has remained tame, confounding all expectations, and gives the Fed maneuvering room.

For now, we expect the market to remain in a trading range: earnings expectations have been lowered and discounted in the markets, and the Fed remains vigilant. We remain invested in US equities. As always, we welcome your comments and questions, and are happy to address any and all concerns, at any

As I appear on CNBC regularly commenting on stocks and the markets, you can also check my LinkedIn profile for updates on my thinking in between quarterly newsletters (or just call or write!). I will be on CNBC again this Monday, October 21 at 3pm as guest-co-host of the first hour of Closing Bell.

Attached is our previous quarterly newsletter, too, in case you missed it in July.
Warmest regards,
Barbara Doran
Managing Member
BD8 Capital Partners LLC
299 Park Avenue, Floor 21|New York|10171
Cell: 917-733-7644
Office: 646-885-5682
Fax: 917-580-6882

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