Insight & Commentaries

Monday Morning Minute 101016

THE WEEK AHEAD The Federal Reserve releases minutes from their latest Federal Open Market Committee (FOMC) meeting Wednesday, and retail sales figures are due Friday. MACRO VIEW Friday’s employment report suggests that income and spending are still growing.  Six and one quarter years from the recession’s end, we see that the average wages and total numbers of hours worked are expanding.  We estimate that hours will be expanding at a 1.5% yearly rate and wages will be growing at 2.5%.  Combining these figures, total income should be expanding near 4%, and this pace is consistent with an expansion in consumer…

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2016 Fourth Quarter Asset Allocation Report

The economy continues to gradually improve from a near stall earlier in the year.  Earnings forecasts are increasing, and cash returns to equity investors look appealing compared to record low Treasury yields.  With signs of economic slack abating, the Fed now seems to be on track for a December rate hike. Equity allocations in portfolios were increased to overweight during the summer, and we continue to maintain a tilt toward large capitalization domestic growth stocks versus foreign.  Bond allocations are tilted away from low-yielding, long-term Treasuries, favoring shorter-duration and higher-yielding corporate debt. Full Report Click Here

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Monday Morning Minute 092616

THE WEEK AHEAD We look at credit, debt, and leverage given new data from the Federal Reserve (Fed). We conclude that private sector debt and leverage remain important contributors to both risk and growth. Elevated levels of private sector debt and leverage increase potential risks that should be addressed in portfolios as the cycle ages. MACRO VIEW Recent data from the Federal Reserve shows private sector debt remains elevated despite some household deleveraging. We continue to believe a relationship exists between private sector debt, the economic cycle, and equity market volatility, and that relationship is stronger today than years ago….

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Monday Morning Minute 091916

THE WEEK AHEAD Federal Open Market Committee (FOMC) rate decision, projections, and press conference Wednesday afternoon should garner significant attention and will Likely sets the stage for a December tightening. MACRO VIEW This week’s FOMC meeting should set the stage for a December hike.  There is little in recent statements that lead us to believe a September tightening is in the cards.  Data since July was generally positive, opening the door for a more balanced statement.  Brexit failed to produce a worse case dislocation, and leading indicators appear resilient.  The WCA Fundamental Conditions Index rose through the summer months, and…

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Monday Morning Minute 091216

This week’s Consumer Price Index data will shed more light on underlying inflation ahead of the Federal Reserve’s (Fed’s) September 21 meeting. MACRO VIEW In 1919, the Federal Reserve Bulletin stated that inflation is the process of making addition to currencies not based on a commensurate increase in the production of goods.  We like this definition because it recognizes inflation as essentially a “monetary phenomenon,” to borrow Milton Friedman’s words.  It also clarifies the central bank’s role as chief steward of the money supply and inflation rate.  Inflation, or lack thereof, is the key feature in the debate over the…

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Monday Morning Minute 090616

Editors’ note:  We are renaming the weekly “News You Can Use: The Week Ahead” to “Monday Morning Minute.”  The goal is to provide a short (~ 1 minute) narrative for the week ahead each Monday (or, in this week’s case, Tuesday). THE WEEK AHEAD Light week for data.  Wednesday’s “Beige Book” provides some additional context for upcoming Federal Open Market Committee (FOMC) discussions on September 21. MACRO VIEW Now that growth is looking better, will the Federal Reserve (Fed) follow through with a rate hike in September?  We think the answer is no. Although the August employment report showed progress,…

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Monday Morning Minute 082916

Global growth is picking up.  At Jackson Hole, Janet Yellen said the case for a rate increase is stronger, given the recent pickup in data.  It appears that earlier concerns that Brexit would hurt near-term growth were misplaced.  Weak productivity growth, a clouded earnings picture, and lackluster investment remain long-term concerns.  This week’s data will provide further insight into employment and manufacturing trends. The Federal Reserve of Atlanta’s “GDP Now” estimate of Q3 GDP is 3.6%.  Private forecasters seem to be raising their growth forecast toward 3%.  This is a big improvement from last winter’s 1% growth environment.  Steady consumer demand, coupled with…

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Barometer Update

The Federal Reserve (Fed) releases the minutes from July Federal Open Market Committee (FOMC) meeting on Wednesday. MACRO VIEW Credit spreads are tighter.  Commodity prices are firmer.  More stocks are participating to the upside.  Financial conditions within the banking system are improving.  These are some of the “high frequency” items that are on the mend this year.  As this happens, equity markets are performing better. Our own WCA Fundamental Conditions Barometer (below) is telling a similar story.  Around the time markets began to price in a less-hawkish Fed earlier in the year, conditions began to firm.  Commodities ended their freefall. …

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The Week Ahead

The data supports an economy gathering momentum into the third quarter.  This week brings some additional data on retail sales and consumer sentiment. MACRO VIEW The July employment report was strong.  Jobs rose 255,000 in the month, adding to the 292,000 increase in June.  These increases contrast sharply with the 84,000 average job gain in April and May.  The strength in jobs suggests income and spending are also picking up.  The Federal Reserve of Atlanta now estimates the economy will grow 3.8% in the third quarter.  Growth averaged just 1% in the fourth quarter of 2015 and first quarter 2016….

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Viewpoint

Friday’s July employment report is the big number this week.  This indicator is a focal point for the Federal Reserve (Fed) and has been very erratic of late.  The 6,000 job loss in May was shockingly poor, but it was followed by a better-than-expected 265,000 job gain in June.  Will the real labor market please stand up?  A Bloomberg survey reveals a street expectation of 171,000 jobs and a 4.8% inflation rate. MACRO VIEW Last week’s Gross Domestic Product (GDP) report showed an economy growing at just 1.2%.  This headline figure will be revised further, but taken at face value,…

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Earnings and Valuations

Earnings season continues.  According to FactSet, analyst expectations are for another decline (approximately -5% )in second quarter earnings, but forward earnings expectations are firming up.  The Fed meets this week — no rate change expected. Earnings and Valuations Focus The rally of the last several sessions is being helped by a firming of earnings forecasts.  Just how much improvement in earnings is expected, and what will the market be willing to pay for those earnings?  According to FactSet, analysts increased their forward 12-month S&P 500 operating earnings number to $127 in June from $124 back in February.  Viewed in a…

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Barometer Improves

The Republican National Convention kicks off in Cleveland this week.  Expect politics to dominate headlines.  Meanwhile, the basic pattern in the data still suggests an improving economy as we head toward the fall. MACRO VIEW The market’s rally of late is accompanied by improvement in the WCA Fundamental Conditions Index*.  Through May, the index rose to 45 and is likely to break above 50 by the time all of the data becomes available.  Earnings forecasts for the S&P 500 are up four straight months, along with some surveys of business expectations.  Oil prices are no longer at lows.  Expectation of…

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