July – August 2019

U.S. Economic and Market Highlights

The Economy

  • July marked the 121st month (just over 10 years) of the current economic expansion in the U.S. The longest period on record the U.S. has been absent a typical recession of two consecutive negative quarters of GDP growth.   
  • How has the expansion lasted so long? There are multiple factors including:
    • The economic environment when the expansion began was optimal for a long expansion, as it occurred in June 2009 following one of the worst and longest economic downturns since the Great Depression.
    • The severity of the 2008 recession created an unusually large amount of slack, or unused capacity, in the economy and labor market. The slack created a situation where the economy could grow for many years before reaching overheated territory.
    • The 2008 recession led central banks around the world to provide economic stimulus packages in the form of historically low interest rates and massive asset purchase programs. This stimulus continued for multiple years and is still in effect a decade later in some countries.
    • The composition of the economy has shifted toward services and away from manufacturing. Services have grown from 58% of U.S. GDP in 1950 to 81% of U.S. GDP in 2017, while manufacturing shrank to 18% from 35% over that same period. The remaining few percent of the economy is agriculture.
    • Economic growth has been weaker than previous expansions. Since June 2009, GDP has grown 25.7% which is below the post-World War II average expansion growth of 27.0% and well below growth in other cycles of similar length including the 42.7% growth in the 1990s and the 51.9% growth in the 1960s.
    • One aspect of this lower growth could be that in the initial years following the recession, consumer confidence and spending took much longer to recover than in previous post-recession periods.
  • The U.S. economy appears to be in the later stages of the cycle, but it is still showing signs of health. Steady employment growth, rising wages, and low household leverage are providing support for the heart of the economy, while consumer spending remains solid at this time.
  • U.S. manufacturers and exporters have been negatively impacted by a stronger U.S. Dollar, as other markets around the world struggle with slower growth, lower interest rates, and lower currency values which diminish purchasing power. 
  • Current uncertainties about the extent to which the U.S. – China trade war will impact prices and future trading relationships has resulted in diminished corporate and government investments.


  • Equities often experience strong performance in the late stages of the economic cycle and a premature defensive asset allocation could be costly to portfolio performance. However, it is impossible to truly know in advance when the expansion cycle moves from “late in the cycle” to the “end of the cycle”, since economic information (i.e GDP) is a trailing indicator.
  • The U.S. stock index (S&P 500) rose by 1.4% in July, while Developed Countries’ stocks (MSCI EAFE) fell in July due to a significant decline at European Banks, and Emerging Markets (MSCI EM) also fell as South Korea’s and Japan’s trade dispute heated up and India’s government proposed to increase taxes on foreign investors.
  • In early August the U.S stock market tumbled amid trade tensions between the U.S. and China, only to recover the following week. Stock market volatility is expected to continue until a trade agreement is worked out.

Fixed income

  • August 31 marked the fourth consecutive month of an inverted yield curve where the 3-month Treasury bill had a higher yield than the 10-year Treasury note. Lower yielding bonds persisted for corporate credit as well as the 3-month and 3-year corporate bond rates were approximately the same.
  • All of the fixed income sectors have received a healthy price returns of over 6% in the past twelve months as yields have declined. The overall credit spread environment improved in recent months despite building concerns of a softening economic environment.
  • The U.S. is one of 30 countries that has reduced interest rates so far this year citing a decelerating global economy, increased trade tensions and subdued inflation.


  • After climbing almost 20% in the first four months of 2019, the broad commodities asset class declined more than 5% since May. The broad commodities market including: energy, agriculture, livestock, and mining will likely be pressured until the U.S. dollar reverses its long-term upward trend. According to Bloomberg, the trade-weighted U.S. Dollar has appreciated 24% since September 2007.