2018 – 2nd Quarter Update
“Trump-enomics” has continued its pressure on the economy.
The escalating tit-for-tat trade war with China, Europe, Canada (to say the least) is starting to trickle down into the real economy of the USA. Some of the major products that have been hit (or expected to) are: washing machines, solar panels, steel, aluminum, Chinese imports.
The total amount is close to $90b. Its effect on world equities has definitely been a reason for concern in the short-term.
Additionally, the Federal Reserve has continued the slow and steady path of increasing rates.
And projected Rate hikes:
The Federal reserve process has stayed transparent with little variations from expectations, however, there is a growing concern that the curve is flattening which invariably increases the potential for inversion (short-term rates greater than long-term rates).
If the yield curve continues to flatten it might invert and this has typically been a strong indicator of an impending recession. While this is not the case at the moment, that is always the fear with over over-tightening.
Overall, as the business cycle matures (i.e. enters the latter stages), we expect our underperforming assets to date to start picking up. Specifically, inflation should tick up and with Inflation Linked Bonds and commodities should increase in value.
While no one knows if a recession is due – we continue to recommend to stick to a disciplined, time-tested diversified approach to counter the effects of the ups and downs of the economic cycle over the long-term.
Wishing you a great summer!