THE BEAR TRAP OF TOO MUCH RISK AVERSION Our central case has been, and remains, that the U.S. economy is on firm footing. Therefore, the chatter of a looming recession is premature. However, market participants have registered their concerns about the threat of recession via the recent volatility in the stock market. The drawdown in August was largely attributed to escalating Sino-American trade risks, which pose a threat to the already creaky global growth backdrop. Quantifying the economic impact is imprecise, although current estimates for the tariffs impact on gross domestic product (GDP) are roughly 0.50 % for the U.S. and more in China. More difficult to handicap is the effect on business confidence, which could weigh on capital spending and employment conditions. That so-called "soft data" has already shown some deterioration, so it does bear monitoring. MANY CROSSCURRENTS EXIST The bimodal nature of some of today's crosscurrents-trade-on/trade-off being the biggest one-does present a possibility that, should something go awry, a bearish case for the stock market's prospects could develop, However, our view is that we may just plod along for a while, but the resolution should be to the upside. Tentative signs are emerging that the elusive economic recovery abroad is at least stabilizing, which offers some encouragement. In addition, while domestic conditions have softened a bit, the powerful force of consumer spending remains well bid and should continue to propel growth in a positive fashion. Consequently, being too risk averse is a bear trap. Trade tensions are a legitimate threat to global economic growth already challenged by a down-swing in the global manufacturing cycle. A recession is a possibility, but it is hardly a foregone conclusion. Last week's preliminary European manufacturing reports suggest activity may be readying a turn, and there is still litle evidence the manufacturing slump has infected the much larger services sector We acknowledge the plunge in the U.S. 10-year Treasury yield since its peak of 3.2 % in early November. Global sovereign yields have followed the same pattern, but the latest decline to near 1.5 % is as much a reflection of ubiquitous central-bank easing biases and a gigantic pool of global bonds yielding less than nothing as it is of new concerns about domestic economic weakness. That is a subtle point of interest, but an important one. If the yield decline is not signaling new softness, then easier financial conditions coming from low bond yields and central bank largesse will be free to act as a tailwind for risk assets. RECESSION FEARS OVERBLOWN An important component of U.S. economic activity is housing. It also acts as a good real-time barometer of interest-rate policy. Admittedly, we have been disappointed by the uninspiring level of residential investment, given the signitficant year-to-date decline in mortgage rates. The trajectory of starts and new building permits is positive, however, and household formation exceeds supply, so housing demand should remain well supported. Housing is a sizable, long-duration asset, so buying interest, which remains solid, is a good indicator of the consumer's propensity to spend. Representing two-thirds of our economy, consumption by this cohort is a key economic impulse The second quarter's 3 % year -over -year earnings growth is much better than the consensus expected when earnings season kicked off and, despite the large oscillations in single-day moves, the S&P 500 has spent most of the past month range bound. We believe recession fears are overblown, but it may take some time for investors to overcome their concerns. That leads us to believe that equities may struggle to make new highs in the near term. However, if, as we expect, the expansion remains intact, the Federal Reserve's dovish pivot will help support the economy at the margin and quite possibly fuel a renewed phase of the bull market in risk assets. If past is prologue, what typically follows the first rate cut is a fertile period for stocks, and the gains produced have historically been quite handsome. Therefore, in spite of continued bouts of volatility, we think stocks still hold appeal for capital appreciation. This article wes weitten by Mark Luschin Chief Investmene Stategist a anney Montgomery Scon, LC. The infomation provided is general and educational in nanure it is not intended to be and should not be construed as, legal or tax advice The concepts ustraned here have legal, accounting and tax mplications Nether lanney Montgomery Scott LLC nor its Finandial Advisors give tax, legal, or accounting advice. Please consult with the appiopriate professional for advice concerming your particular croumstances. The examples provided ane al hypothetical and do not take into accourt any specic stutons he hypothetical examples are peovided to help lusate the concepts discussed theoughout and do net consider the effect of fees, epenses or other costs that will efect investing outcomes Any actual performanoe sesults will dfer from the hypothetical situations lus ated The Stirling Group was founded on a simple belief that everyone's economic and life situation is unique. We keep that simple principle at the forefromt when creating tailored financial plans for our clients. As veteran Financial Advisors, THE STIRLING GROUP janny Mongry So LLC Janney we have vast experience researching the marketplace and advising our clients on the products and services that best meet their needs. We are dedicated to learning about your personal goals, and together we will use that information to THE STIRLING GROUP AT JANNEY MONTGOMERY SCOTT LLC 2200 Georgetowne Drive, Suite 400, Sewickley, PA 15143 www.TheStirlingGroupAdvisors.com 1 724.934 2953 1 in build a solid financial plan focused on your specific needs C ANNEY MONTGOMERY SCOTT LLc- MEMBER NYSE, FINRA SPC Www.ANNEYCOM THE BEAR TRAP OF TOO MUCH RISK AVERSION Our central case has been, and remains, that the U.S. economy is on firm footing. Therefore, the chatter of a looming recession is premature. However, market participants have registered their concerns about the threat of recession via the recent volatility in the stock market. The drawdown in August was largely attributed to escalating Sino-American trade risks, which pose a threat to the already creaky global growth backdrop. Quantifying the economic impact is imprecise, although current estimates for the tariffs impact on gross domestic product (GDP) are roughly 0.50 % for the U.S. and more in China. More difficult to handicap is the effect on business confidence, which could weigh on capital spending and employment conditions. That so-called "soft data" has already shown some deterioration, so it does bear monitoring. MANY CROSSCURRENTS EXIST The bimodal nature of some of today's crosscurrents-trade-on/trade-off being the biggest one-does present a possibility that, should something go awry, a bearish case for the stock market's prospects could develop, However, our view is that we may just plod along for a while, but the resolution should be to the upside. Tentative signs are emerging that the elusive economic recovery abroad is at least stabilizing, which offers some encouragement. In addition, while domestic conditions have softened a bit, the powerful force of consumer spending remains well bid and should continue to propel growth in a positive fashion. Consequently, being too risk averse is a bear trap. Trade tensions are a legitimate threat to global economic growth already challenged by a down-swing in the global manufacturing cycle. A recession is a possibility, but it is hardly a foregone conclusion. Last week's preliminary European manufacturing reports suggest activity may be readying a turn, and there is still litle evidence the manufacturing slump has infected the much larger services sector We acknowledge the plunge in the U.S. 10-year Treasury yield since its peak of 3.2 % in early November. Global sovereign yields have followed the same pattern, but the latest decline to near 1.5 % is as much a reflection of ubiquitous central-bank easing biases and a gigantic pool of global bonds yielding less than nothing as it is of new concerns about domestic economic weakness. That is a subtle point of interest, but an important one. If the yield decline is not signaling new softness, then easier financial conditions coming from low bond yields and central bank largesse will be free to act as a tailwind for risk assets. RECESSION FEARS OVERBLOWN An important component of U.S. economic activity is housing. It also acts as a good real-time barometer of interest-rate policy. Admittedly, we have been disappointed by the uninspiring level of residential investment, given the signitficant year-to-date decline in mortgage rates. The trajectory of starts and new building permits is positive, however, and household formation exceeds supply, so housing demand should remain well supported. Housing is a sizable, long-duration asset, so buying interest, which remains solid, is a good indicator of the consumer's propensity to spend. Representing two-thirds of our economy, consumption by this cohort is a key economic impulse The second quarter's 3 % year -over -year earnings growth is much better than the consensus expected when earnings season kicked off and, despite the large oscillations in single-day moves, the S&P 500 has spent most of the past month range bound. We believe recession fears are overblown, but it may take some time for investors to overcome their concerns. That leads us to believe that equities may struggle to make new highs in the near term. However, if, as we expect, the expansion remains intact, the Federal Reserve's dovish pivot will help support the economy at the margin and quite possibly fuel a renewed phase of the bull market in risk assets. If past is prologue, what typically follows the first rate cut is a fertile period for stocks, and the gains produced have historically been quite handsome. Therefore, in spite of continued bouts of volatility, we think stocks still hold appeal for capital appreciation. This article wes weitten by Mark Luschin Chief Investmene Stategist a anney Montgomery Scon, LC. The infomation provided is general and educational in nanure it is not intended to be and should not be construed as, legal or tax advice The concepts ustraned here have legal, accounting and tax mplications Nether lanney Montgomery Scott LLC nor its Finandial Advisors give tax, legal, or accounting advice. Please consult with the appiopriate professional for advice concerming your particular croumstances. The examples provided ane al hypothetical and do not take into accourt any specic stutons he hypothetical examples are peovided to help lusate the concepts discussed theoughout and do net consider the effect of fees, epenses or other costs that will efect investing outcomes Any actual performanoe sesults will dfer from the hypothetical situations lus ated The Stirling Group was founded on a simple belief that everyone's economic and life situation is unique. We keep that simple principle at the forefromt when creating tailored financial plans for our clients. As veteran Financial Advisors, THE STIRLING GROUP janny Mongry So LLC Janney we have vast experience researching the marketplace and advising our clients on the products and services that best meet their needs. We are dedicated to learning about your personal goals, and together we will use that information to THE STIRLING GROUP AT JANNEY MONTGOMERY SCOTT LLC 2200 Georgetowne Drive, Suite 400, Sewickley, PA 15143 www.TheStirlingGroupAdvisors.com 1 724.934 2953 1 in build a solid financial plan focused on your specific needs C ANNEY MONTGOMERY SCOTT LLc- MEMBER NYSE, FINRA SPC Www.ANNEYCOM