Insight & Commentaries

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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The second quarter showed a “bounce” in activity from the first quarter’s “dip.” The first quarter gross domestic product registered the first quarterly decline in three years during the first quarter. Steady final demand and the fading of weather effects and inventory drag are helping to right the ship. Foreign conditions are relatively weak, but we believe these trends are likely to reverse in the months ahead.

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Looking for Lift

Our barometer for measuring changes in fundamental conditions is hovering just north of 50. Recent incoming economic data are also generally supportive of continued growth.

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Indications of steady final demand by domestic consumers, along with improving cyclical components like production and orders, sets the stage for a bounce in activity through the second quarter.

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A lull in the data through the winter months appears to be giving way to better economic performance as we head into the second quarter. Employment, production, and final demand seem to be firming now that the winter is over.

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Ukraine’s interim government is calling for more support from its western allies to force Russian troops to leave the country, increasing pressure on the United States and Europe to craft an appropriate response. Ukraine adds further uncertainty on top of an already noisy data flow obscured by weather, inventory, and other effects.

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There are signs that the economy is seeing some lift as we write this outlook for 2014. Not only has most of the economic data been behaving nicely of late, but private credit growth is picking up, fiscal drag is running off, and signs of a pickup in global growth are emerging.

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