Party on Wayne! Party on Garth! Make no mistake; the US economy is doing well. The third estimate of Second Quarter GDP growth came in at 4.2%, compared to 3.0% for Second Quarter 2017, and the latest estimate for Third Quarter GDP growth from the Federal Reserve Bank of Atlanta is 4.0%. According to the Bureau of Labor Statistics, changes in total nonfarm payroll in the past three months were 134,000, 270,000 and 165,000, respectively, an average of 189,667, in-line with the average of 199,417 for the 12 months prior. With the Index of Small Business Optimism from the National Federation of Independent Business hitting an all-time high of 108.8 in August, is it any wonder that risk assets, at least in the US, are setting records?
Global property securities had an indifferent quarter, reverting back to underperforming the broader equity markets for the quarter after outperforming in 2Q. Property securities continued the trend of outperformance versus bonds. Weaker currencies versus the USD had a modestly negative impact on USD returns. The ongoing threat of global trade wars disrupting the synchronized global growth theme that has been so prevalent created some headwinds throughout the quarter with trade relations between the two largest global economies, China and the US, worsening in the quarter. Meanwhile, emerging market worries have risen and the political landscape around the globe has become more muddled with everything from Brexit uncertainty to the rise of populism creating political division in many countries. The US economy has shown strength through it all, diverging from other economies that have shown signs of slowing. This led the US FOMC to its third rate increase in 2018 and put upward pressure on sovereign bond yields as the quarter came to a close. The increasingly complex outlook for global growth and pressure on interest rates from a global shift away from monetary stimulus made for a more challenging quarter for property securities with increasing dispersion in performance across countries and property sectors. While operating conditions in many markets have generally remained stable, the delicate balance between tighter monetary policy and economic growth will be a key driver of performance and sentiment near term.