Insight & Commentaries

2017 Second Quarter Asset Allocation Report

The “reflation trade” that drove financial market behavior since the middle of last year lifted stocks and weighed on bond prices. This leaves us with an economy performing better and stock indices near records. Lower bond yields and higher equity valuations help lift short-term growth but also dampen our long-run return forecasts. In the months ahead, we expect to see the pace of improvement moderate compared to what we experienced over the past nine months. Equity allocations in portfolios were increased last summer, and we continue to maintain a modest tactical tilt toward large capitalization domestic stocks over bonds and…

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The Case for Rising Dividends

We believe companies with a history of increasing dividends provide a good starting place in a search for fundamentally strong and growing companies. Importantly, steady dividend growth often follows consistent profitability and shareholder-focused management. A dividend growth perspective looks beyond today’s yield and considers other factors, such as quality, growth, risk, and value. A track record of dividend increases can be viewed as a tangible signal by a company’s management that they are both willing and able to boost a payment to shareholders. This commitment suggests quality fundamentals currently and an expectation of continued improvement into the future. Full Text

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2017 Viewpoint

EXECUTIVE SUMMARY There are signs that growth is improving as we start the new year. The pickup began last spring, continued through the fall, and accelerated into year’s end. The surprise outcome of the election raised expectations for new tax, spending, and regulatory proposals, which could impact growth and business sentiment. The bond market is also taking notice of a changing landscape as interest rates price in some additional inflation. We start the year with a tactical tilt toward domestic equities and away from longer-term bonds. A portfolio strategy that combines a long-run point of view with some short-term flexibility…

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Monday Morning Minute 050817

WASHINGTON CROSSING ADVISORS THE WEEK AHEAD Friday’s inflation data should underscore slow-but-positive growth with slower pace for rate hikes. MACRO VIEW The market will get the latest inflation numbers on Friday which should show only a modest increase in consumer prices. Continuation of low underlying inflation bolsters the Federal Reserve’s case to maintain low interest rates. In turn, lower interest rates provide some near-term tonic to the economy through easier terms of financing and support for asset prices. Under a regime of very low inflation and interest rates, the value of future cash flow streams on real estate, equities, and…

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Monday Morning Minute 040317

  MACRO VIEW Stocks (S&P 500) returned 6.3% in the first quarter and long-term U.S. Treasuries (+20 years) returned 1.25%. Cash generated a 0.22% return (T-Bills). Investor sentiment was strong during the quarter and market volatility was below normal. Our second quarter outlook discusses our take on the economy and markets at this point. We continue to see the economy on a growth path, but fundamental conditions are expected to ease in the months ahead. It is important to recognize that much of the “reflation trade” that began last year is now largely reflected in market prices. Consider the table…

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Monday Morning Minute 032717

THE WEEK AHEAD Markets digest last week’s failed vote on the American Health Care Act and begin to look forward to the upcoming earnings season. MACRO VIEW Congress abandoned a much awaited vote on The American Health Care Act on Friday. Uncertainty over the passage of the bill pressured equities, buoyed bonds, and weighed on the dollar last week. Markets recognize that prospects for potent tax cuts later this year was at least partly dependent on passage of the health care bill. Without funds resulting from the bill’s passage, the House of Representatives may struggle to pass a revenue neutral…

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Monday Morning Minute 032017

THE WEEK AHEAD We update our WCA Fundamental Conditions Index this week and forecast a period of moderation ahead. MACRO VIEW The Federal Reserve (Fed) delivered their third rate increase since 2015 last week. The increase in the federal funds target rate and rate paid on excess bank reserves was widely expected, however. Months of improving employment and inflation readings paved the way for the hike. Fed Chair Janet Yellen downplayed concerns over rising asset prices, full employment, and the size of the Fed’s balance sheet. Markets took the tone of the announcement as mostly dovish, or at least consistent…

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Monday Morning Minute 031317

THE WEEK AHEAD The FOMC meets this week and is expected to deliver a rate increase. Wednesday’s announcement will be associated with a summary of economic projections and a press conference by the Chair. MACRO VIEW The return on cash hasn’t been much to write home about recently. As the economy picks up, expectations for short-term interest rates are perking up (graph below). A year ago, markets were pricing in an expectation for a 1.2% short-term interest rate by early 2019. Today, that same expectation is near 1.9%. As assumed cash returns rise, they compete against returns available on other…

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Monday Morning Minute 030617

THE WEEK AHEAD The improving growth theme gets tested again this week with data on factory orders and employment. MACRO VIEW We are expecting to see a strong start to 2017, followed by a period of moderation through the year. We expect consumption to grow at a 5% annualized rate through the first quarter with investment growing at a 10% pace. If correct, the rolling four quarter average growth rate for the overall economy will be trending near 2.5% growth (chart below). This forecast incorporates our expectation for a March interest rate hike and recent readings from our WCA Fundamental…

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Monday Morning Minute 022717

THE WEEK AHEAD We expect good reports this way on durable goods and manufacturing this week, consistent with other recent data points. The improvement in the business outlook is being clearly embedded in market expectations. MACRO VIEW It has been more than 90 months since the last recession. Expected tax cuts, infrastructure spending, and regulation are fueling consumer and business optimism. In turn, this optimism is helping lift the stock market to records. Given this, we want to spend a minute to remind ourselves how we got here. During the ’07-09 recession, the U.S. stock market had an average value…

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Monday Morning Minute 022017

THE WEEK AHEAD Quiet week on the data front this week, but the Federal Reserve (Fed) releases minutes from their latest meeting. MACRO VIEW Last week, the February Philadelphia Business Outlook Survey (BOS) reached 43.3, a level not seen since 1973. The three month moving average rose to 24.9 which was last achieved in 2004 shortly after Congress signed the  Jobs and Growth Tax Relief Reconciliation Act of 2003. Both is 1973 and 2004, the economy posted the best growth of the respective decades. Why is the report important? For one, it focuses on a very important component of the…

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Monday Morning Minute 021317

THE WEEK AHEAD President Trump addressed Chinese and Japanese currencies last week and reiterated his call for a “level playing field” for currencies. This week we revisit China and emerging markets where we remain underweight in the diversified core of asset allocation portfolios. MACRO VIEW Emerging markets (EM) are delivering less growth than they used to, but remain risky. Chart 1 below shows how EM growth is converging with developed markets in recent years.   Potential growth is dampened by slipping productivity (green) and capital investment (red). These factors explain most of the moderation in EM growth in recent years….

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Monday Morning Minute 020617

THE WEEK AHEAD Data continues to come in relatively strong with last week’s employment report offering mostly good news. MACRO VIEW The January data continued to post positive momentum, supporting the bullish case for stocks. Friday’s January employment report was not an exception. Nonfarm payrolls rose 227,000 and beat most economist’s expectations. This is higher than the 180,000-200,000 range we’ve become accustomed to see over the past several quarters. The unemployment rate ticked up to 4.8%, but remains near what many consider “full employment.” A closer look at private jobs reveals still healthy year-over-year growth. This measure, which ignores government…

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