Insight & Commentaries

Sticking With U.S. Focus

The United States continues to make progress.  Yes, manufacturing slowed during the summer, but the rest of the economy is doing well.  Demand for goods and services is holding up.  More Americans are becoming employed and very few are filing for unemployment insurance.  For the first time in years, the percentage of the population with jobs is rising.  Income and spending are rising, too. With the unemployment rate at 5.1%, the Fed is nearing its first rate increase in a decade.  The Fed believes that the best way to forecast inflation is by looking at labor market slack.  To measure…

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To Raise or Not to Raise

This week brings more information on the economy’s performance including Friday’s August employment report.  The rise in volatility comes just weeks before the Federal Reserve (Fed) is expected to decide on the timing of the first rate increase in a decade.  Consequently, the focus will be on how the recent spike in market volatility is sustained and to what extent it feeds back into the real economy.  While last week’s tumult is probably too recent to register much of an impact on the employment report, each new piece of information from here will be evaluated from the perspective of how…

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Reality, Risk and Return

THE WEEK AHEAD Markets suffered losses last week as investors weighed a variety of threats to global growth, notably China.  Commodities remain under pressure and emerging markets continue to feel the pinch from global slowing.  As the dust settles, we believe the United States will remain an attractive destination for global capital.  We continue to focus strongly on quality and consistency in equity selection while tactical allocations have been moved closer to policy portfolio allocations.  Volatility is likely to remain elevated. Update on Our Outlook The past week again reminded investors that volatility is still with us.  Since 2012, stock markets…

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Countdown to Liftoff

With 38 days to go before the Fed’s September rate decision, we see some signs of risk aversion in markets and continued signs of weak growth outside our borders.  Here are just a few examples.  Credit spreads spiked last week, as the difference between the Moody’s Baa Corporate Bond Yield®, which acts as a credit index, and the long-term U.S. Treasury bond spiked above 230 basis points (it was 180 basis points back in April).  There is a growing number of declining equity issues across the various U.S. exchanges relative to advancing issues. A good portion of this turbulence can…

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Emerging Markets Tactical View

We see higher long-run returns from emerging markets after a five year period of sideways performance and as returns in recent years push the Morgan Stanley Capital International (MSCI) EM Index well below the long-run trend (chart below).  We are currently expecting long-run EM equity returns to be about 1% higher than our current long-run domestic equity return, now that the emerging markets have suffered through five years of sideways market action and underperformance versus developed equity markets.  The multi-year slog for emerging market investors means that major EM indices remain near the levels seen during the 2008-2009 recession, despite…

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Third Quarter Asset Allocation Report

Full Report 2015 is off to a slow start for investors, as stocks closed the second quarter essentially flat year-to-date and bond returns were generally negative. There are some positive takeaways from the second quarter that should not be overlooked, however. Key Points: The economy is again growing slowly (likely near 2% in the second quarter) after grinding to a halt in the first quarter. The thought of the first quarter stall leading to a recession is fading, and while our WCA Fundamental Conditions Barometer is far from strong, it has stopped slipping and has even seen a small bounce…

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Focus on Quality and Diversification

The market will digest the latest twist in the ongoing Greek bailout saga this week, Janet Yellen’s semiannual testimony before Congress on the economy and monetary policy, and a series of earnings reports including several of the major banks.  Our comments this week focus on how higher volatility shares reflect changed investor attitudes regarding risk in recent years. Macro View While the return of a risk-taking attitude is helpful for the economy to grow, we are mindful that there is an eventual limit to the amount of risk that markets will ultimately be willing to assume.  Increasing risk tolerance can…

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Greece’s Troubles

Greece’s troubles enter a new and uncharted phase this morning, as Greek negotiators abandoned talks this weekend with creditors and, instead, called for a July 5 referendum where the Greek people will vote on whether they agree with the latest proposal by creditors (which actually no longer exists).  Greece’s creditors rejected Greece’s request for an extension of the current loan program, which means that the Greek government will not have access to a remaining 16 billion Euros of additional funding.  Consequently, the Greek government will most likely miss a €1.5 billion Euro payment due to the International Monetary Fund (IMF)…

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Six Recent Signs of a Pickup

Fundamental conditions began to slip last fall and continued through the first quarter of this year. Stocks lagged behind bonds during most of this time, and the economy ground to a halt in the first quarter. Now, it appears that conditions are firming somewhat as we enter the summer months. If this sounds familiar, it should. Last year, we saw a similar pattern. After contracting at a 2.1% annualized pace in the first quarter of 2014, the economy roared back in the subsequent two quarters with growth nearing a 5% pace through mid-year. With worry over the Federal Reserve (Fed),…

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Revisiting Long-Run Views

This week: The Federal Open Market Committee (FOMC) will make an announcement Wednesday at 2:00 p.m. Eastern Time, with a press conference to follow.  Greek negotiations continue.  May industrial production data due out today (expectation +0.3%). Macro View This week will bring the Federal Reserve Board’s (Fed) next move into focus as they announce its latest policy decision on Wednesday (forecasts updated and press conference to follow).  Ultimately, we expect the Fed to continue toward a September hike, given the recent firming in employment and other data. Mixed views have been expressed recently from other members of the FOMC, but the…

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Employment Gains Back On Track

The May employment report was solid and brings the three-month average job growth number to 206,000. The unemployment rate of 5.5% is within a range that could be considered within earshot of “full employment.” Wages are picking up modestly, as hourly earnings continue to show signs of lift (now above 2% year over year). Hours worked remain relatively steady. Consequently, the “output gap” continues to narrow, and all signs are pointing to a rate increase by the Federal Reserve (Fed) later this year. This action is out of step with broader global indicators of growth, and this was highlighted by…

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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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