Insight & Commentaries

Failure to Communicate

Macro View A meeting between Euro-area finance ministers, central bankers, and European Commission officials ended abruptly Monday, as a Greek government official said the Euro area’s recommendation to extend bailout conditions was unacceptable. Greece’s current aid package expires February 28, thus necessitating a new round of negotiations between Greece and its creditors. The newly-elected Greek government is seeking a new deal with easier terms. The cost of Greek debt and the cost for bondholders to insure against a Greek default has risen dramatically in recent months, suggesting real concern about the potential for some form of default. Monday’s failed negotiation…

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United States — Still the Best Alternative

Payroll data suggests the U.S. is still the best alternative for global growth, but global conditions remain weak, and Europe and China continue to face significant challenges.  Meanwhile, domestic earnings continue to grow, as first quarter S&P 500 earnings per share (EPS) growth tracks toward 6% excluding energy (3% growth if energy is included).  Analysts expect 3.4% growth in S&P 500 operating earnings this year, according to the most recent survey from FactSet. Macro View Last week’s payroll number for January, along with upward revisions to prior months, was far better than expected and strengthens the bull case for the…

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Waiting on Mario Draghi

Thursday’s European Central Bank (ECB) announcement on monetary policy should attract considerable investor attention, given mounting deflation concern and faltering growth across much of Europe. Macro View The flow of data relating to economic and market fundamentals has become increasingly mixed as global inflation slips, demand from emerging markets weakens further, and investors express higher risk aversion.  The widening of credit spreads, flattening of the yield curve, and an increase in volatility, as measured by the VIX, are all clear manifestations of heightened risk aversion.  These impulses, coupled with continued signs of weakness in global growth, have led to declines…

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Emerging Markets Update

Energy price declines should provide a benefit to global growth and lower inflation.  Real growth could be materially boosted by lowered energy and gas prices by as much as $100 billion in the United States alone, as the lower price acts as a positive shock to consumption.  On the flip side, we recognize that the impulse for lower prices emanated from weaker demand from emerging markets.  Should the Federal Reserve (Fed) proceed with a midyear rate hike, one less prop for commodity prices will be removed. It is hard to interpret exactly how much of this is already priced in…

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WCA 2015 Macro View

As we head into the new year, we see the United States economy emerging as a bright spot on the global stage.  For 2015, we expect to see above-trend growth, further improvement in private sector balance sheets, and generally improved confidence.  The domestic economy should perform better than Europe, where structural reform is still needed, and better than many of the emerging markets, which continue to struggle.  Chinese growth should continue to moderate, while Russia and other large net energy exporters will struggle given today’s lower oil price. A recent modest pickup in volatility, slippage in Treasury yields, and a…

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First Quarter Asset Allocation Report

First Quarter Asset Allocation Review As we head into the new year, we see the United States economy emerging as a bright spot on the global stage. For 2015, we expect to see above-trend growth, further improvement in private sector balance sheets, and generally improved confidence. The domestic economy should perform better than Europe, where structural reform is still needed, and better than many of the emerging markets, which continue to struggle. Chinese growth should continue to moderate, while Russia and other large net energy exporters will struggle given today’s lower oil price. View Full Report (Adobe PDF)

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The Oil Story – A Net Benefit

Macro View As 2014 starts to wind down, we see oil prices headed south along with bond yields and equity prices closing near the highs for the year.  This is a happy state of affairs for most, as 401(k) values are getting a boost while daily living expenses get a bit easier to carry.  In contrast to the oil shocks that occurred in 1973-1974, 1979, 1980, 1990, and 2003-2004, today’s sharp drop in oil prices is conveying benefits to the average worker who has been struggling to see a real increase in wages.  With the average price for a gallon…

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U.S. Economy Closing Out ’14 in Good Form

Last week’s strong jobs report continues a trend of solid data that suggests the U.S. economy is closing out 2014 with good form. Macro View The U.S. economy continues to deliver relatively solid results. Just recently, we’ve seen impressive results on employment, purchasing managers indices, and vehicle sales. Notably, last month’s 321,000 jobs added were the most since January 2012. To put this in perspective, the total number of private sector jobs added in the past year is close to 2.66 million. This pace is better than our expectation for this year and is near the peak level of job…

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Fundamental View Remains Optimistic

Macro View Our fundamental view remains optimistic as we head into the final few weeks of the year.  Overall, the growth thesis for the United States remains intact and the bout of volatility seen in October failed to produce any meaningful lasting drags or impediments to growth.  With the Dow nearing 18K and the S&P 500 nearing 2100, the improvement in the outlook for the U.S. economy and earnings growth is clearly well recognized.  Earnings growth for the third quarter will come in very close to 8% over last year’s results.  As with the second quarter, the third quarter growth…

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U.S. Still Strong as Foreign Conditions Weaken

Macro View We are increasingly tied to goings on in the rest of the world especially as exports now account for a record 13.6% of gross domestic product.  By that measure, trade’s contribution has never been more important to the U.S. economy than it is today.  Last year, the United States exported $2.3 trillion in goods and services, which in turn supported 11.3 million American jobs.  Over the last five years, the increase in U.S. exports accounted for approximately one-third of economic growth.  Capital markets, too, have become inextricably intertwined. Global growth matters, therefore, and the news recently from many…

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U.S. Fundamentals Remain Positive

Macro View Fundamentals in the economy and capital markets continue to move in a positive direction and, at near 15x forward earnings, equities appear reasonably priced compared to Treasuries.  Still, the changing dynamics of global growth, employment, and inflation are keeping markets attention.  This week, politics will move to center stage as Americans go to the polls to cast their votes in midterm elections. Polling ahead of the midterms seems to favor Republicans given President Obama’s 40% approval rating and a historic bias against incumbents during midterm races.  Republicans are looking to pick up six net seats in the Senate…

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Most of the data we examine is moving in a direction consistent with continued growth. This is being reflected in the performance of markets, which seem to be anticipating further growth ahead. Portfolios are tilted toward U.S. dollar assets, especially U.S. equities. Bond allocations are focused on shorter-duration and high-quality issues. We remain cautious on gold.

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