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February 2019
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National Non-Operating Observations
The extended U.S. government shutdown hung over capital markets for most of the month, finally ending on January 25. Due to the shutdown, the Bureau of Economic Analysis was forced to reschedule economic releases to March. This resulted in only an estimate from the Atlanta Fed for fourth-quarter 2018 Gross Domestic Product growth of 1.5 percent, a slowdown from the 2.5 percent to 3.0 percent seen in the first three quarters of 2018. The labor market remains tight, with solid job and payroll growth, and more people entering the labor force, hence a decrease in the unemployment rate.
In addition to the rebound of capital markets (discussed in further detail below), a focus of investors in January concerned comments by Federal Reserve Chairman Jerome Powell that sought to reassure market participants that the Fed was “prepared to shift the stance of policy” and “could afford to be patient about further policy firming.” These comments were interpreted as an indication that rate increases would slow in 2019, and recent Fed Funds futures levels are pricing in no additional increases in the Fed’s benchmark rate for 2019.
†4Q 2018 Federal Reserve Bank of Atlanta GDP Growth Rate Forecast
*60/40 Asset Allocation assumes 30% S&P 500, 20% MSCI World, 10% MSCI EM, 40% Barclays Agg.

January 2019
Month Over Month Change (bps)
Year Over Year Change (bps)

GDP Growth
Unemployment Rate
Personal Consumption Expenditures
30yr MMD
30yr Treasury
Monthly Return on 60/40 Asset Allocation*
Non-Operating Assets
After a brutal and volatile month of December, capital markets rebounded dramatically in January. The S&P 500’s 7.9 percent return was the best January performance since 1987, and the best of any month since October 2015. U.S. markets were not alone in their resurgence. The MSCI World Index gained 7.7 percent and the MSCI Emerging Markets Index rose 8.7 percent. The Barclays Aggregate also gained ground, ending the month 1.1 percent ahead. Despite a strong showing in January, a blended portfolio of 60 percent equities and 40 percent bonds is still 3.5 percent lower than the levels seen in January 2018. Major risk points in global markets remain. Investors are focused on an increasingly disorderly “Brexit” process, the culmination of U.S.-China trade negotiations, and the slowing of economic growth in the EU and China.
Long Term
Last Twelve Months
Long Term
Last Twelve Months
Non-Operating Liabilities
After four consecutive months of outflows totaling $11.5 billion toward the end of 2018, January saw a massive influx of money into municipal bond funds, with $4.9 billion flowing back into the market. Increased inflows did not materially impact borrowing rates, as the larger U.S. Treasury market held steady in January, resulting in flat month-over-month municipal yields. Short-term rates also stayed relatively stagnant for the month, rising only 1 bps following Fed commentary perceived as more dovish regarding future rate hikes. After the Fed implemented a 0.25 percent increase in its benchmark rate in December 2018, U.S. economists surveyed by Bloomberg do not foresee another rate hike until June 2019 at the earliest.
Note: Capital markets borrowing levels, as approximated here by the “30-yr U.S. Treasury” and “30-yr MMD Index,” are dependent upon macroeconomic conditions, including inflation expectations, GDP growth, and investment opportunities elsewhere in the market. The key measure to track are bond fund flows—money moving into bond funds leads to more cash chasing investment opportunities, boosting prices and reducing yields. Fund inflows generally are moderate and consistent over some time horizon; fund outflows are typically large and sudden, as external events affect investor sentiment, resulting in selling bonds at lower prices and driving yields up.
Long Term
Last Twelve Months
Long Term
Last Twelve Months
National Observations
National Observations
©2018 Kaufman, Hall & Associates, LLC
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