October 9, 2019

The stock market has been volatile throughout 2019.  Many economists worry about slower growth overseas particularly in China which is the world’s second largest economy.  They also note considerable weakness in the U.S. manufacturing sector caused by a sharp drop in export orders.  At the same time they are worried about President Trump’s impeachment proceedings and what might happen if there is a hard exit for the U.K. from the European Union at the end of this month.  Despite this wall of worried, the S&P 500 is only 3.5% below the record high level it reached in July.

Looking ahead we see the stock market continuing to reach progressive new high levels as we  move throughout the rest of 2019 and 2020.  The Fed has lowered rates by 0.5% since July and may cut rates one more time between now and year.  The real funds rate is negative which is something that only happens when there is considerable slack in the economy (like an unemployment rate at 10.0%) and the Fed needs to put the pedal to the metal.  Mortgage rates have fallen 1.3% since the end of last year to a near record low level of 3.6%.  Home prices are rising slowly.  These two factors should re-invigorate the housing sector in the months ahead.  At the same time fiscal policy is stimulative as government spending is on a track to increase 4.0% this year and  perhaps another 3.0% in 2020 largely as the result of a pickup in the pace of defense spending.  With wildly stimulative monetary and fiscal policy there is no way the U.S. economy is going into a recession any time soon.

Given the positive combination of moderate GDP growth, a moderate increase inflation, and very low interest rates we fully expect the stock market to reach still another record high level..

Stephen Slifer


Charleston, SC