Congratulations!  We just survived another volatile quarter.  The S&P, the broad index of US stocks, barely eked out a positive return for the quarter.  The ups and downs were driven by the usual suspects, the FED, China trade, a short-lived inverted yield curve and efforts by the media to talk up recession and a contraction in US manufacturing. 

The Federal Reserve has now reduced the interest charged to banks by 50 basis points, half a percent.  The FED has indicated it will remain flexible on interest rates.  A member of the FED stated that a further move in rates could come at the next monthly meeting.  The FED is watching the slowdown in manufacturing, the slowdown in areas affected by the China trade standoff and the general health of the US consumer.  The FED is also responding to liquidity issues in US banks, an issue in part created by the FED decision to stop buying US debt.

The interest rate paid by the 2-year US treasury briefly went higher than the 10-year treasury.  That can be an indicator of a coming recession and is described as an inverted yield curve.  The media jumped on the short-term event as a 100% surefire indicator of a recession.  Interest rates drop as the prices of the treasuries go up.  The prices are going up because investors from all around the world are bringing their money to the US where interest rates are still in the positive.  The Eurozone and much of Asia have gone to negative yields on their sovereign debt.  The US dollar continues to gain strength against world currencies, making it more difficult for US companies to sell products abroad while we are importing deflation.

The trade talks with China appear bogged down.  New talks are scheduled in October but the unrest in Hong Kong could derail the process.  The weekend protest in Hong Kong have grown more violent and the police are becoming more lethal in their response.  Protest have now spread to Taiwan where opposition is staunch to the idea of becoming part of China.  China has shown that pledges of local governance cannot be trusted.  Should China move militarily to confront the protests in Hong Kong the financial markets would react very negatively.  Hong Kong is granted a different trading status than China but acts as a financial outlet for China.  Not to get too deep into the weeds but the unrest in Hong Kong will need to be watched. 

The number one question being asked as we move into the 4^th quarter, what impact will the Democrat move to impeach the president and overturn the election of 2016 have on the stock market?  Historically, the market has gone up during such proceedings.  What will be affected are the trade talks with China and approval of the US, Canada and Mexico trade agreement.  US trade with our North American neighbors is much more important to our economy than China trade.  So far, Democrats have refused to bring the agreement up for a vote.  China may delay reaching any agreement with the US believing that a replacement president would be easier to deal with.

I am happy to report that my wife and I are finally home with our 2 new children, teenagers. Thank you for your patience with me during what turned into a 4-year ordeal.