Carole King may have been lamenting the inevitable end of a long-lived relationship in her classic ballad “It’s too late,” but for worried investors she could have easily been singing about how US monetary and trade policy have conspired to bring an end to the longest-lived economic expansion and bull market in history. Said more specifically, it won’t matter if the Federal Reserve (Fed) cuts rates and the US and China solve for trade this year – too many interest rate hikes and too much trade uncertainty have put us on an inevitable path to a recession and a bear market. It’s simply too late. In support of that argument, the pessimistic market participant cites the flattening to a partially inverted US yield curve and significant weakening in manufacturing, most recently revealed in the June ISM Purchasing Manager Index which registered a barely expansionary 51.7 (50 is the dividing line between contraction and expansion).

Well, we aren’t ready to give up on the economy and the market. We see our more optimistic outlook supported by the S&P 500 Index’s 20% return year-to-date, solid Q2 GDP growth of 2.1%, and the US adding a healthy 244,000 new jobs in June. While manufacturing conditions have weakened, the sector is still expanding at home and the larger, more meaningful services sector is doing quite well. As the Fed lowers interest rates and the US/China solve for trade – both of which should happen this year – we would expect corporate and consumer sentiment and spending to get a boost, and for the economy and risk assets to be biased higher into year end.

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The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a registered investment advisor.

Chart source: ISM

Tagged: Tim Holland, weekly wire, US/China trade, S&P 500, Federal Reserve