Insight & Commentaries

After an extended period of historically low interest rates, income-focused bond investors have finally found relief as interest rates have risen to levels not seen since late 2007 (see Chart A below). Chart A Time to declare victory, right? If only it were that simple. There are external forces that influence the bond market, none more so than the Federal Reserve (Fed). Who knows what the Fed will do and when? Could they start cutting interest rates this year after two years spent increasing them? Chart B below shows the twenty-year history of the Fed Funds Target Rate. Chart B…

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Imagine this: The U.S. economy had a stellar year last year, outperforming Europe with a robust 2.5% growth rate. This is a far better performance than almost anyone imagined. It was better than most economists, pundits, and forecasters thought possible a year ago. Yet, not only did the economy grow far better than expected, but investors got hooked on risk again. Novel AI technologies captured investor imaginations, leading the tech-heavy Nasdaq Composite Index to trade at a near-record 60% premium to the S&P 500 based on enterprise-value to cash flow multiples (Nasdaq now trades at 24.3x versus S&P 500 at…

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Viewpoint 2024

Over the past year, the economy and financial markets have surpassed most forecasters’ expectations. The U.S. economy grew at an annualized rate of 5% in the third quarter of 2023, with falling inflation, stable employment, and a rise in the S&P 500 stock index.

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On CNBC’s Worldwide Exchange, Kevin Caron discusses today’s robust economy and stock market and how picking quality stocks may benefit a portfolio in an uncertain year ahead.

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Kevin Caron, Senior Portfolio Manager at Washington Crossing Advisors, was featured on Fox Business’s The Claman Countdown with thoughts on quality and the Magnificent Seven and how Treasuries are still providing competitive yield for investors.

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Qualityland

At Washington Crossing Advisors (WCA), we go to great lengths describing the high quality businesses selected in our Rising Dividend and Victory equity portfolios. We believe in buying quality companies at reasonable prices that have low debt, predictable cash flows, and are highly profitable and reinvesting back into their business. This follows an intuitive, common sense approach to investing, particularly when considering risk-adjusted return in a strategy. That said, quality investing often becomes convoluted and misunderstood by investors – mainly due to antiquated frameworks put into practice decades ago that have unintentionally become foundational to investing and financial planning. In…

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As 2023 comes to a close and investors look back over the past two years, one can’t ignore the paradigm shift in rising interest rates and its far-reaching effects on markets and the economy. After all, investment portfolios, mortgages, savings accounts, and auto loans, to name a few, have been drastically impacted by rising interest rates, which stand at 5.25% today. To put it into perspective, we have not seen a Fed Funds Rate this high, achieved in such a short period, in over 35 years (see Chart A). Against a backdrop of high rates, risk, and recession uncertainty, it…

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7 November 2023 I St. Louis, MO The board of directors of Emerson (NYSE: EMR) has declared a regular quarterly dividend of $0.525 per common share, an increase of approximately 1% from the previous quarterly dividend of $0.52. For calendar year 2023, this marks the twenty fourth dividend change for the Washington Crossing Advisors Rising Dividend portfolio. All twenty four changes were increases. The average dividend increase is 6.24% compared with December 31, 2022 indicated levels. Please contact your financial advisor for a complete list of all portfolio holdings that have, in the past 12 months, increased, decreased, or had no change in…

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Although the economy is faring better than expected this year, we see a mixed bag of signals. Forexample, while popular market-capitalization weighted stock indices are up for the year, the average stock is essentially flat. Moreover, the outlook for corporate profits and capital spending are flattening out, suggesting muted growth in the private sector ahead. Similarly, monetary and fiscal policies have diverged. Monetary policy is restrictive (higher interest rates), while fiscal policy is expansive (rising deficits). Cross currents such as these lead to a neutral read of incoming data, suggesting we keep portfolio risk exposure very close to benchmarks.

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Page through any investment brochure, factsheet, or presentation, and you’ll eventually get to the disclosure language claiming “All investing involves risk.” For fixed income investors, credit spreads over risk-free U.S. treasuries provide a sense of the interest rate, reinvestment, and credit risk they assume when buying corporate bonds. Along the same lines, stock investors must consider inherent risks in the equity markets when facing investing decisions. The Equity Risk Premium (ERP) indicates the price of risk in equities and is a key metric in determining the appeal of owning stocks versus bonds or other assets at any given time. What…

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Many managers use textbook financial ratios such as return on equity, debt to equity, and earnings per share variability to evaluate the quality and value of a company. However, these metrics can be easily manipulated by a company’s management and misused by index providers and rating agencies. For example, the return on equity ratio can be increased overnight by issuing debt and using it to buy back stock rather than investing in the business to promote growth. This can create an illusion of higher profitability without actually improving the company’s business operations. Distortions Caused by Share Buybacks To better understand…

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Consistency is a big part of quality. Our search for consistency leads us to companies that generate dependable growth. And the most consistent growth engine of the world’s economy — decade after decade — has been the consumer. Household consumption sits at the center of our economy, accounting for over 70% of all activity in the United States. When threatened, government intervention has been there to help shore up consumption, come what may, and from administration to administration. The reason for such policies are simple: employers all across the economy ultimately hire, invest, and produce to serve consumers. If consumption…

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Quality and Certainty

The only sure thing in investing is the uncertain. When we began the year, bearishness was rampant. Most Wall Street forecasters were expecting a recession, and the International Monetary Fund (IMF) warned the “worst is yet to come.” Thus far, the dismal outlook of these forecasters has yet to materialize. The lesson is that accurate and precise forecasts are rare. So how do we deal with uncertainty? We plan for the unexpected by continually focusing on quality. Fixing the roof when the sun is shining is far easier than when it rains! The S&P 500 is up 18% year-to-date, with…

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As we pointed out in our Viewpoint 2023, the air of gloom that hung over markets at the start of the year was extreme. Instead, we saw improving fundamentals and opportunity for the situation to play out better than expected. So far, the economy and markets have proven resilient in 2023 with equity markets and the economy turning in better-than-expected performance. While the economy rolls along, however, there are some crosscurrents in the data leading us to avoid large tactical bets at the moment. Conquest Portfolios

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