Bonds stellar, up 2.27% in Q3 and 8.52% YTD.

S&P 500 cooled, only up 1.7% this quarter, after highs of near 20% for the first three quarters.

Domestic stocks beat international.

Large cap dominates small cap, but September saw small company stocks score better.

Value: the comeback kid? This past month large cap value and small cap value outpaced growth.


Fed Lowers Rates

The Federal Reserve, in an expected move, lowered the Fed funds rate by 25 basis points (bps) to a range of 1.7% to 2.00%. The divergence of thought amongst Fed members was unexpected, however. One Fed member preferred a deeper cut of 50 bps, some wanted to maintain the current range, while a few while others thought a rate increase was warranted. Markets do not like uncertainty, and uncertainty certainly abounds.


Manufacturing contracted in September, as the PMI® hit 47.8 percent, a decrease of 1.3 percentage points from the August reading of 49.1 percent.This is the lowest reading since June 2009, the last month of the Great Recession, when the index registered 46.3 percent.


Do you think we are headed for a recession?

The US economy has slowed due to a weakening global economy and trade tensions with China. Trade talks are scheduled to resume between the US and China in October, and the sooner the better. The question remains how much longer can the American consumer keep leading the economic charge with job and wage gains.

We should be able to forestall recession a little while longer.

While the overall economy is growing, it is now doing so at a much slower pace. What is more worrisome is that the manufacturing sector is contracting and at a faster pace. This, more than an inverted yield curve, is what could be the precursor to the long-anticipated recession.

The unemployment rate fell to 3.5% and inflation stayed at about 1.5% as of the end of third quarter. With numbers like that, we should be able to forestall a recession for a little while longer.

An Inverted Yield Curve in Uncharted Territory

What is the yield curve and what does it mean when we have an inverted yield curve?

The yield curve is a graph depicting rates on US Treasury issues. Usually, it slopes upward as short-term rates are lower than long-term rates because of the additional risk associated with longer-term maturities. An inverted yield curve is when short-term rates are higher than long-term rates.

The yield curve has inverted before every recession since 1975. However, not every yield curve has been a prelude to a recession. What typically happens is the Fed raises short-term borrowing costs to cool off a heating economy that is showing signs of higher inflation.

The situation is now different. The Fed has actually twice lowered rates, yet we had brief inversions with the spreads of both the 10-year and 2-year maturities and the 10-year and 30-day maturities. This is new unchartered territory for the US – the Fed lowering short-term rates AND an inverted yield curve.

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We don’t know when a downturn will occur and how severe it will be. It’s a good idea to revisit your asset allocation to make sure you are invested in a portfolio that is right for you. The right asset allocation enables you to stay the course when challenging market environments occur and can give you peace of mind that your portfolio can ride out the downturn.

Reviewing your asset allocation and preparing for any short-term cash needs can help you maintain the discipline needed for long-term investment success. If you wish to discuss your allocation or any other concerns, please call us.

As always, we appreciate your trust and confidence.

Warmest regards,
Platt Wealth Management


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