In a continuation of the themes that described the first half of the year, the third quarter was
characterized by solid U.S. economic data across several dimensions. Jobless claims dropped to
their lowest level in 49 years while GDP growth reflected a 4.2% annualized rate, underpinned by
strong consumer and business spending as well as a surge in exports ahead of potential retaliatory
tariffs from China. The equity market delivered a third quarter gain of 7.7%, with the S&P 500
reaching fresh record highs on the back of accelerating retail sales, strong corporate earnings and
steady employment gains. Investors were also encouraged by constructive steps between the U.S.
and Mexico on NAFTA re-negotiations, though details of the agreement remained less than certain
as the quarter closed. While much of the macroeconomic data had a positive tilt, the beginning
signs of weakness have started to show in the housing sector – the segment of the economy which
has thus far been an engine for growth – as new home sales, housing starts, and building permits
have disappointed. This is a particularly interest rate sensitive part of the economy and affordability
is much lower than it has been in the past, particularly for the new homebuyer segment, as
mortgage rates have climbed significantly over the past twelve months. Trade tensions with China
are another source of concern, as multiple retaliatory tariff announcements by both administrations
in July and September raised the ante in the trade battle between the two nations...
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