“Industry Perspectives” 3Q 2017

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Read our view on the economy and key drivers of change in the global equity markets.

If multiple central banks throughout the world embark on drawing down their balance sheet in the same manner as the U.S., interest rates could be pressured to go higher.

Clay Brethour, President, Buffalo Funds

Date Published:
October 2017

Pages:
4

Contributors:
Clay Brethour, President

OVERVIEW:
The equity markets continued their upward trajectory during the 3rd quarter, with most market indices closing the quarter at an all-time high, or close to their record highs. This defies the well-known trading adage of “sell in May and go away” that warns investors to sell their equity holdings in May to avoid the typical volatile Summer months and come back in the Fall.

Why is it taking so long for interest rates to increase? From a monetary policy perspective, moving too quickly could slow growth unnecessarily, but raising rates too gradually could create an inflationary problem down the road that might be difficult to overcome without triggering a recession.

  • In an effort to bring it into alignment with levels prior to the financial crisis, the Fed will begin to shrink its $4.5 trillion bond portfolio in October.
  • Federal Reserve Chairwoman Janet Yellen closes in on the final months of her four-year term as the leader of the U.S. central bank.
  • The most common cause of U.S. recessions in the postwar era has been monetary tightening by the Federal Reserve as a means to fight inflation.

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