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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