![\"\"](\"https:\/\/advisor.wellington-altus.ca\/therosedalegroup1\/wp-content\/uploads\/sites\/32\/2019\/09\/Annotation-2019-09-20-114044-300x195.jpg\")
<\/p>\nThe U.S. Federal Reserve kept interest rates unchanged at its most recent meeting held on
\nJune 19, but it pivoted to a rate cut bias. Specifically, the Fed dropped its \u201cpatient\u201d stance
\nand stated it \u201cwill closely monitor the implications of incoming information for the economic
\noutlook and will act as appropriate to sustain the expansion.\u201d In plain English: they\u2019re
\nconcerned about decelerating trends in the U.S. economy and rising global risks and are
\nready to preemptively cut interest rates to keep the economy buoyant. A change in the
\ndirection of interest rates marks an important milestone for the economic cycle and perhaps
\nthe most noteworthy indication that the current cycle may be ending. Indeed, previous
\ninterest rate cuts have been associated with economic and market peaks (see exhibit 1).<\/p>\n
Interest rate policy is the primary tool central banks use to facilitate economic growth and
\ncontain inflation. Over the course of a normal economic cycle central banks increase interest
\nrates as the economy accelerates and cut interest rates when economic growth
\ndeteriorates. Some may be surprised that the next move in interest rates may be lower
\ngiven that the U.S. central bank rate is currently sitting at a paltry 2.5% (the next Fed
\nmeeting is July 31). At the beginning of the year, we expected the interest rate path would
\nbe influenced by macro factors such as U.S.-China trade negotiations, with a successful trade
\ndeal being a catalyst for modestly higher rates. However, the souring of trade negotiations
\nand the resulting impact on consumer\/business confidence has increased the odds of an
\ninterest cut(s). Furthermore, the impact of nine consecutive 0.25% rate increases since late 2015 has started to show some early signs economic fatigue. Some important economic
\nindicators, such as consumer and business confidence, employment, and new home sales
\nhave been sliding recently and likely point to weaker GDP growth ahead. Consensus
\nforecasts suggest that corporate profits are also expected to grow at a decelerating rate for
\nthe balance of 2019.<\/p>\n
<\/p>\n
Having already priced in the 2018 corporate tax cut, the U.S. equity market has been looking
\nfor further catalysts to propel markets higher. The prospect of lower interest rates, which
\nwould sustain consumer\/business spending and possibly extend the current business cycle,
\nis one such catalyst that has driven the equity market higher in recent weeks. Meanwhile,
\nmovements in the bond market, namely declining long-term bond yields, are sounding a
\ncautionary tone for what lies ahead. The spike in gold bullion to a six-year high appears to be
\ncorroborating the bond market\u2019s message. The simultaneous rally in equity and bond
\nmarkets, on the same set of economic data, is not sustainable in our view and eventually
\none of these markets may have to capitulate. In the short-term we think equity markets can
\nsustain current levels due to the dual prospects of a U.S.\/China trade deal and lower interest
\nrates, but we also recognize that these catalysts are already partially priced into current
\nstock prices.<\/p>\n
With so much of the market\u2019s direction now hinging on interest rate policy, every major
\npiece of economic data now carries more weight than at other times in the cycle.
\nCounterintuitive as it may seem, weaker economic data is now being applauded by bond
\nand equity markets as it increases the likelihood of interest rate cuts. Similarly, good
\neconomic news is being frowned upon. This was evident on Friday July 5 as the U.S. reported
\nstronger than expected June employment data and the market responded negatively. We
\ncontinue to advocate a defensive portfolio strategy at this late stage in the economic cycle,
\nreflected primarily by lower equity exposure and greater concentration in defensive sectors.<\/p>\n
The Rosedale Group joined Wellington-Altus Private Wealth in May and has been
\ntransitioning clients to our new platform. We are truly grateful for the overwhelming
\nsupport and congratulatory messages from our clients. Our forward-looking investment
\nstrategy and commitment to service will not change. What has changed (and will change
\nagain!) is our address. We are happy to announce that starting in early-2020 we will be
\nmoving back to our namesake neighbourhood and look forward to welcoming you to our
\nnew office located at 10 Alcorn Avenue.<\/p>\n
In addition to enhanced technology platforms, we are excited about the broad universe of
\ninvestment alternatives at Wellington, particularly those that are uncorrelated to the equity
\nmarket. We have been conducting our due diligence on several of these investment
\nopportunities in the context of client portfolios and look forward to discussing them with
\nyou.<\/p>\n","protected":false},"excerpt":{"rendered":"
The U.S. interest rate hiking cycle is nearing an end. What comes next? The U.S. Federal Reserve kept interest rates unchanged at its most recent meeting held on June 19, but it pivoted to a rate cut bias. Specifically, the Fed dropped its \u201cpatient\u201d stance and stated it \u201cwill closely monitor the implications of incoming […]<\/p>\n","protected":false},"author":57,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_oasis_is_in_workflow":0,"_oasis_original":0,"_oasis_task_priority":"","_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[25,19],"tags":[22],"class_list":["post-1260","post","type-post","status-publish","format-standard","hentry","category-love-letters","category-read","tag-the-love-letter"],"yoast_head":"\n