Random Thoughts

Like a flat-footed fighter, investors were floored by a flurry of worrisome inferences that included the 2-year-to-5-year yield-curve inversion, skepticism toward a near-term resolution to the ongoing trade dispute and the possibility that Friday’s employment report will be strong enough to delay the Fed’s anticipated slowdown in its pace of rate increases.

Even though we do not forecast the start of a recession in the coming six-to-12 months, we project a slowdown of y/y GDP growth to 2.7% by Q4 2019 from 3.2% in 2018 and see S&P 500 EPS growth narrowing to 7.5% next year vs this year’s projected jump of nearly 23%.

As a result, many investment policy committees that we monitor have adjusted their sector recommendations to embrace a more defensive posture by upgrading consumer staples and real estate, while downgrading communication services and financials.