It is clear that the U.S. economy is continuing its gradual slowdown that began in the second quarter. While there are many explanations, including uncertainty caused by the delayed resolution of the presidential election, we believe it is substantially a result of the actions this year by the Federal Reserve.
Consider the stock market. Shifting valuation paradigms and a reversal of "momentum" have combined with the ill effects of "tightening" to undermine enthusiasm for equities. Most institutional money managers we talk with have reached a consensus that broader stock market averages will return 5% to 8% annually over the next few years and most are increasing the weighting in their portfolios to alternative asset classes. Their conclusions, if correct, are especially thought-provoking when this yield range is assessed on a relative, risk-adjusted basis. If corporate earnings decelerate at a faster rate than anticipated, do stocks feature attractive intermediate-term value?