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Nov. 1, 2019

October was not as spooky a month as it can be, although short term volatility continues in all the various indices. Lately the key drivers of the economy and markets have been the trade disputes and geopolitical frictions. Recent geopolitical volatility – including attacks on Saudi oil infrastructure – underscores the effect of international events on domestic capital markets.

As a result of the continued uncertainty, corporate confidence is slightly reduced and along with it comes a slowdown in business spending. Yet, in general, the economic expansion remains intact, supported by dovish central banks and a robust U.S. consumer.

The Federal Reserve approved an expected quarter-point interest rate cut on October 30th but indicated that the moves to ease policy could be nearing a pause. It was the third cut this year as part of what Fed Chairman Powell characterized as a “midcycle adjustment” in a maturing economic expansion. While the markets had priced in around a 100% change that this rate cut would occur, some economists are saying that the probability of an additional rate cut during the Fed’s December meeting is 25% at best.

Our experience has proven to both our clients and us that by maintaining quality holdings and quarterly rebalancing, volatility levels are mitigated. Diversified portfolios can withstand any future short-term volatility.

We believe the likelihood of a shallow recession is about 50% and the risk of a more severe recession is 10%.

The Dow, S&P 500 and the NASDAQ are up for the year at 15.94, 21.17, and 24.97 percent, respectively, with the 10-year Treasury yielding 1.78 percent.