Insight & Commentaries

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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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 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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Monday Morning Minute 120516

THE WEEK AHEAD We continue our focus on the potential impact of President-elect Trump’s policy proposals on the economy and our long-run capital market assumptions. MACRO VIEW The “Trump” rally signals an expected policy shift based on candidate Trump’s promised economic reforms.  His economic plan seeks to achieve faster growth through a combination of proposals designed to lower taxes and regulation.  Is this expectation reasonable? To begin with, the plan, as outlined during the campaign, is large.  If implemented as proposed, it would include the largest tax cut since the 1980s.  For individuals, the tax plan consolidates seven tax brackets…

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Monday Morning Minute 112816

THE WEEK AHEAD Purchasing managers’ surveys and the November employment situation reports are out this week.  We expect solid showing in both areas. MACRO VIEW Friday brings the final employment report before the Federal Reserve’s December meeting.  Given other recent reports, we expect a solid report with monthly payrolls up ~200,000.  This should provide further justification for what is now a widely expected December rate hike.  We are also watching for the wage component and expect another strong rise in wages and salaries.  A 4-5% increase in year-over-year incomes seems easily in the cards and should garner significant attention. The…

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Monday Morning Minute 112116

THE WEEK AHEAD A shortened week due to Thanksgiving.  Markets to focus on durable goods, Trump transition, and upcoming Italy vote. MACRO VIEW The market’s recent reaction to a Trump victory adds fuel to what was already an improving fundamental backdrop (graph, below). How are fundamentals improving?  For starters, the bottom-up S&P 500 12-month earnings forecast advanced from a monthly average of $123.52 in the first quarter to $129 currently.  Risk appetite improved and higher-risk stocks and bonds both outperformed their lower-risk counterparts.  Long-run inflation expectations firmed from 1.4% to 1.75%.  A pickup in China’s economy, firming commodity prices, the…

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Monday Morning Minute 111416

THE WEEK AHEAD How the Trump win changes markets, the economy, and CONQUEST and DYNAMIC STRATEGIES portfolios. MACRO VIEW While light on details, the Trump economic vision is capturing the market’s attention.  The sweep by Republicans came as a shock to markets, and President-elect Trump’s acceptance speech highlighted spending and tax cut initiatives that are welcomed as “pro-growth.”  There is much still that needs to be worked out, and the devil is always in the details. If campaign promises are enacted as stated, sweeping changes to trade, taxes, government spending, and regulation are all on the table.  Most proposals on…

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Monday Morning Minute 110716

THE WEEK AHEAD Voters head to the polls. MACRO VIEW Markets are pricing in greater political risk headed into this week’s election.  Looking beyond the market action, however, we see encouraging fundamental signs.  Employment gains, steady job growth, stable demand, and a return to earnings growth all speak to a better backdrop for stocks.  Domestic economic growth should be near our 2-3% range in the second half, marking a clear turnaround from the pattern of weakening growth through 2015 to the first half of 2016.  It is even likely that business investment is picking up, now that the ill effects…

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Monday Morning Minute 102416

THE WEEK AHEAD Active week for earnings as 178 of S&P 500 companies are scheduled to report. As per FactSet, Q3 2016 blended year-over-year earnings are expected to decline 0.3%. The blended sales growth rate for Q3 2016 is 2.6%. The forward P/E multiple is now 16.5x, which is above the 10-year average of 14.3x. Friday’s advance release of Q3 2016 GDP should attract attention in addition to the five members of the Federal Reserve scheduled to speak today and Tuesday. S&P ESTIMATES and VALUATION Equity investors should focus on earnings as the long-term driver for return. For calendar year 2016,…

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Monday Morning Minute 101716

THE WEEK AHEAD Corporate earnings are expected to contract moderately this quarter (-1.8%) for the sixth consecutive quarterly decline.  However, much of the data we follow improved through the summer, suggesting potential for upside surprises.  We update our forecast for the WCA Fundamental Conditions Barometer which stands near 70, reflecting improved near-term growth and lessened recession risk. MACRO VIEW The WCA Fundamental Conditions index showed steady improvement in recent months (Chart A), and our near-term forecast (Chart B) continues to track above 50.  Barometer readings above 50 imply a higher probability of continued growth, with lessened near-term recession risk.  The…

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