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MCF Weekly Capital Market Review - September 23rd, 2019

There was surprisingly little news impacting financial markets last week. In a follow up to the drone strikes in Saudi Arabia, the Trump administration is pushing for increased sanctions on Iran. Secretary Pompeo visited Saudi Arabia last week to construct a coalition to deter Iran, who is believed to have supported the Houthi rebels that have claimed responsibility for the attack. Saudi Arabia made similar comments, choosing to present its case to the UN soon rather than launch a conventional war, for now.[1] The Middle East continues to be a volatile region and further escalation, or all-out war, could disrupt global oil production given the region’s importance to it.

The Fed moved as expected by lowering interest rates 25 basis points. Despite strong labor markets and positive US economic outlook, it cited global developments and muted inflation pressures as reasons for the cut.[2] These global developments are slowing global growth (especially outside the US) and an uncertain outcome of US trade disputes. The weakening in global growth data and heightened risks caused the Fed to proactively respond with a rate cut. Powell’s press conference relayed the message of responding to weakening global data, different from its “mid-cycle adjustment” stance last meeting. If the global data continue to show further slowdown, market participants can expect more rate cuts.

Both sides in the US-China trade war are still leaving the public in the dark. Chinese negotiators were in Washington D.C. last week but they left earlier than scheduled, opting to skip visits to farmlands in Montana and Nebraska.[3] The public has little information to go on but the fact that neither side is making combative public statements can be interpreted as progress rather than escalation. The next important deadline is October 15 when tariffs will be raised from 25% to 30% on $250 billion of Chinese goods.

Industrial production and the Fed business outlook survey were stronger than expected, a positive for a manufacturing sector that has recently struggled. Both housing starts and existing home sales were also stronger than expected.

This week will see releases on consumer confidence, GDP, durable goods orders, and personal income and outlays.


[3] https://www.cnbc.com/2019/09/20/chinese-trade-negotiators-cancels-us-farm-visit-cuts-trip-short.html

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by MCF), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from MCF.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.   MCF is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of the MCF’s current written disclosure statement discussing our advisory services and fees is available upon request. If you are an MCF client, please remember to contact MCF, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. Please click here to review our full disclosure.

REFLECTED INDICES

S&P Composite 1500® Index combines three leading indices, the S&P 500®, the S&P MidCap 400®, and the S&P SmallCap 600® to cover approximately 90% of the US market capitalization. It is designed for investors seeking to replicate the performance of the US equity market or benchmark against a representative universe of tradable stocks. Investors cannot invest in an index.

MSCI ACWI ex USA Index captures large and mid cap representation across 22 of 23 Developed Markets (DM) countries (excluding the US) and 23 Emerging Markets (EM) countries. With 1,859 constituents, the index covers approximately 85% of the global equity opportunity set outside the US. Investors cannot invest in an index.

Bloomberg Barclays Global Aggregate ex-USD Index is a measure of global investment grade debt from 24 local currency markets. This multi- currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. Investors cannot invest in an index.

Bloomberg Barclays High Yield Corporate Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded. Investors cannot invest in an index.

S&P GSCI is a composite index of commodity sector returns which represents a broadly diversified, unleveraged, long-only position in commodity futures. The S&P GSCI is intended to provide exposure to broad-based commodities. Investors cannot invest in an index.

Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed- rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass- through), ABS and CMBS (agency and non-agency). Provided the necessary inclusion rules are met, US Aggregate eligible securities also contribute to the multi-currency Global Aggregate Index and the US universal Index, which includes high yield and emerging markets debt. The US Aggregate Index was created in 1986 with history backfilled to January 1, 1976. Investors cannot invest in an index.

Bloomberg Barclays 1-10 Year US Government Inflation-Linked Bond Index tracks the 1-10-year inflation protected sector of the United States Treasury market. Investors cannot invest in an index.

Bloomberg Barclays US Treasury 1-3 Year Index measures the performance of public obligations of the US Treasury with maturities of 1-3 years, including securities roll up to the US Aggregate, US Universal, and Global Aggregate Indices. Investors cannot invest in an index.

Bloomberg Barclays US Treasury Bellwethers 3 Month Index is an unmanaged index representing the on-the-run (most recently auctioned) US Treasury bill with 3 months’ maturity. Investors cannot invest in an index.