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If you don’t mind a little instability, U.S. equity investors really can’t complain about the first half of 2019. Sure, it was a little volatile and who likes that? But with a roughly 17% return, the year is on track to be one of the strongest years since 2009.

Source: FS Insight, Bloomberg, Factset

So far, it’s been a tale of two markets, with two abrupt operating modes: risk-on when stocks rose, and risk-off when stocks fell and bonds rose. Now, as I have noted previously, recent incoming economic data is softening. However, it’s important to note, US purchasing manager indexes should rebound in 2020 after eventually dipping below 50 by 3Q19. This movement is predicted by the US Treasury 30 year-10 year yield spread curve steepening, which began in earnest 16 months ago.

Ironically, the weaker data is, on balance, a positive, as the combined headwinds of trade wars, last year’s U.S. federal government shutdown, and Brexit fears are also motivating the Federal Reserve Board to shift towards a rate cut from its previous tightening stance. And since 1971, the first Fed rate cut—in instances when the US economy wasn’t in recession—has led to a stock rally 100% of the time, three, six, nine and 12 months later, with a median nine-month gain of about 17%. (S...

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