Accretive October 2019 Market Recap

November 6, 2019

October was a strong month for global markets.  Domestically US stocks rose a little over 2%, while internationally it was a bit better for US investors as local markets rose and the US dollar weakened.  Investment grade bonds were generally profitable, but not as strong as equities.  The market for riskier high yield issuers remained relatively healthy and liquid.  

At the end of October, the US Federal Reserve cut its overnight rate by 0.25% for the third consecutive time.  This easing cycle has seen the Fed take the target rate from a high of 2.50% to 1.75%.  During the process, the yield curve has steepened.  One can read the steepening as the market no longer pricing in a Fed induced recession.  The Fed has indicated it will take a meaningful change in the outlook for further cuts to be warranted.  We view that as them telling the market that they are pausing for now.  It is worth noting that there are significant differences of opinion within the Fed on where they go from here and presumably what is deemed “meaningful”.  Presently, the market seems to be pricing one more cut in early 2020.  We think we will probably need to see some market turmoil to get it.  

Perhaps more significant than the rate cuts, were the Fed’s steps to ease strains in the short-term funding markets by buying treasuries, about $60 billion per month.  Put another way, the Fed is again expanding its balance sheet.  The Fed claims this is not another round of quantitative easing (QE).  We think QE has a pejorative connotation and this may just be a re-branding.  Regardless of what you call it, we would expect this to be supportive of asset prices and multiples.

Why they are doing this?  During the last couple months, some hiccups in the overnight funding market have caused the New York Fed to provide liquidity and banks have been drawing on this liquidity.  Liquidity injections conjure up memories and fears of another 2008 scenario, because other banks are not stepping into the market, but this time around we think it is less concerning.  Given all their capital requirements, combined with the small size and episodic nature of the profit opportunity, it doesn’t make sense for the big banks to provide liquidity.  This is where the NY Fed steps in.  We are, however, a little surprised at how fragile the underlying plumbing of the money markets still are, but the circumstances here seem benign.  

Overall, the economic and market data has been mixed.  Manufacturing data has been soft, but the consumer has been strong.  Inflation has been below the Fed’s target, but employment has been strong.  This earnings season has seen corporate profits contract, but not as badly as forecast.  Recent GDP reports indicate that the economy is still expanding but the pace is not what some would like.  Perhaps they are still anchoring their expectations to an economic climate that has changed.  At the end of the day, we believe that equities tend to follow earnings and cash flows over time.  For now, earnings growth has slowed, but we think that may be more indicative of a reset than a recession.

Market Insights

Other related articles

Read other related articles from this category.

Important Information

Accretive Wealth Partners, LLC (“Accretive Wealth”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Accretive Wealth and its representatives are properly licensed or exempt from licensure.This commentary is a general communication and the information contained herein is being provided for educational and informational purposes only. This commentary does not constitute investment advice and it should not be relied on as such. It is not intended to be and should not be considered a solicitation to buy or an offer to sell a security or a recommendation for any specific investment product, strategy, security or any other purpose. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. Any examples used are generic, hypothetical and for illustration purposes only. Prior to making any investment or financial decisions, an investor should seek individualized advice from a personal financial, legal, tax and other professional advisors that take into account all of the particular facts and circumstances of an investor’s own situation.Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions that are solely the opinion of Accretive Wealth and should not be construed as indicative of actual events that will occur.Any performance presented herein is for illustrative purposes only. Past performance shown is not indicative of future results, which could differ substantially.  Current data may differ from data quoted.The views and strategies described herein may not be suitable for all investors. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities or gain exposure to such asset classes and financial markets.Information contained herein that is not proprietary to Accretive Wealth has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Accretive Wealth.For additional information, please visit our website at