Insight & Commentaries

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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In Support of 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 report

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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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Monday Morning Minute 013017

THE WEEK AHEAD The Federal Reserve’s Federal Open Market Committee (FOMC) meets this week amid further signs of improvement in the economy. No rate increase is expected, but the focus is on the central banks’ response to shrinking economic slack and fiscal policy initiatives. Pressure is also mounting for the Fed to address the management of their $4.5 trillion balance sheet. MACRO VIEW Core durable goods orders posted strong 0.8% growth in December and inventories were flat, suggesting better growth ahead. The advance report on capital goods provides some useful clues about the future. Orders for factory goods tell us…

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Monday Morning Minute 012317

THE WEEK AHEAD With the inauguration behind us, we return our focus to incoming data. Also, please note the client approved WCA Viewpoint 2017 is now available. MACRO VIEW The stock market’s move from last spring discounts the improved growth prospects developed over the last 6-9 months. Incoming economic data and better results from companies painted a better picture through the fall and drove much of the gain in stock prices. The momentum helped lift the United States’ equity market capitalization $3.6 trillion (16%) to over $25.5 trillion from $21.9 trillion a year ago, the 2.5% 30-year U.S. Treasury bond…

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Monday Morning Minute 121916

THE WEEK AHEAD A surprise boost in optimism is impacting financial markets and has the potential to feed into growth as we start 2017.  The WCA Fundamental Conditions Index ends 2016 on a strong footing, suggesting better growth through the fourth quarter. MACRO VIEW Today’s Monday Morning Minute will be our last weekly commentary of the year, and we would like to say thank you to all our readers.  Our best wishes to you for a joyous holiday season and a prosperous 2017! Our final update is also a positive one for the stock market and the economy.  Although the…

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Monday Morning Minute 121216

THE WEEK AHEAD The Federal Open Market Committee (FOMC) is expected to deliver an anticipated rate hike against a backdrop of firmer growth, reflation, and anticipated fiscal policy change.  The December 13-14 meeting will be accompanied by forecast changes and a press conference by the Chair. MACRO VIEW 2016 is set to close in much better form than it began.  The start of the year saw growth stall and investor anxiety surge; but starting around mid-year, these trends reversed course.  As the year is set to close, optimism is much improved.  Consumer confidence is strong, analysts are raising profit forecasts, market…

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