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Market Update: 09-03-19

U.S. TREASURIES AND THE YIELD CURVE

John Lynch Chief Investment Strategist, LPL Financial | Jeffrey Buchbinder, CFA Equity Strategist, LPL Financial

We expect the combination of a softer economic growth outlook with mild U.S. inflationary pressures and ultralow yields internationally to potentially translate into lower domestic yields. The uncertain U.S.-China trade situation has weighed heavily on business investment, resulting in weaker manufacturing activity worldwide. It is also important to note that trade challenges exist beyond the United States and China. The United States’ pacts regarding NAFTA 2.0, South Korea and Japan, and European automobiles are still unresolved. Despite a decade’s worth of global monetary policy accommodation, very few inflationary pressures are evident, presenting leading central banks with the need for further accommodation.

In recent communications from the Federal Reserve (Fed), including minutes from the July meeting and Fed Chair Jerome Powell’s recent speech in Jackson Hole, WY, the central bank has emphasized its intention to “act as appropriate” in order to “sustain the expansion.” The Fed, which has a history of ambiguity, has...

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