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 less pessimism about emerging markets and commodities, lessens risk.  Last month’s retail sales grew north of 5% on an annualized basis, for example.  The data coming out of Europe in the weeks following Brexit has not been all that bad, either.  Europe’s purchasing managers surveys still point to expansion in manufacturing through August.

The pickup in recent data makes a recession less likely in the near-term horizon.  This again led us to nudge higher the portfolio equity allocations this month.  Long-term return expectations, which drive the core allocations in portfolios, are under pressure by low starting yields for bonds, weak global growth, and elevated equity valuations.  The S&P 500 now trades at 16.9 forward earnings versus a 10-year average of 14.3 (18% premium).  On the bright side, the expected earnings figure has been on the rise.  Today, analysts expect S&P 500 operating earnings of $129 over the next 12 months.  Earlier this year, that figure was just $123.

The forward view on equities just got better-looking, given the bounce in growth now underway.


Date Report Period Survey Prior
Monday, August 29: Personal Income July 0.4% 0.2%
Personal Spending July 0.3% 0.4%
Dallas Fed Manf. Activity August -3.0 -1.3
Tuesday, August 30: Consumer Confidence August 96.8 97.3
S&P Case-Shiller HPI 20-city, SA – M/M June -0.1%
S&P Case-Shiller HPI 20-city, NSA – M/M June 0.9%
S&P Case-Shiller HPI 20-city, NSA – Y/Y June 5.2%
Wednesday, August 31: ADP Employment Report August 165K 179K
Chicago PMI August 54.3 55.8
Pending Home Sales M/M July 0.7% 0.2%
Pending Home Sales Y/Y July 0.3%
Thursday, September 1: Weekly Jobless Claims August 27 261 K
ISM Manufacturing August 52.0 52.6
Domestic Vehicle Sales August 13.77M
Total Vehicle Sales August 17.20M 17.77M
Nonfarm Productivity 2Q16 -0.5% -0.5%
Unit Labor Costs 2Q16 2.0% 2.0%
PMI Manufacturing Index August 52.1
Construction Spending M/M July 0.5% -0.6%
Friday, September 2: Change in Nonfarm Payrolls August 170K 255K
Unemployment Rate August 4.8% 4.9%
Labor Force Participation Rate August 62.8%
Underemployment Rate August 9.7%
International Trade Balance July -$43.0B -$44.5B
Factory Orders M/M July 1.6% -1.5%


LONG-RUN STRATEGIC POSTURE:  Our long-run forecasts lead us to overweight large cap domestic growth stocks, high-yield corporate bonds, and gold in the diversified “core” of portfolios. Underweight positions in “core” are long-term U.S. Treasuries, foreign developed equities, and REITs. Meanwhile the equity allocation in the short-term tactical “satellite” portion of portfolios was increased to 40% equity / 60% fixed income from 33% equity / 66% fixed income. Mid-year rebalancing took place at the end of June to reflect updated long-run forecasts.

The information contained herein has been prepared from sources believed to be reliable but is not guaranteed by us and is not a complete summary or statement of all available data, nor is it considered an offer to buy or sell any securities referred to herein. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. There is no guarantee that the figures or opinions forecasted in this report will be realized or achieved. Employees of Stifel, Nicolaus & Company, Incorporated or its affiliates may, at times, release written or oral commentary, technical analysis, or trading strategies that differ from the opinions expressed within. Past performance is no guarantee of future results. Indices are unmanaged, and you cannot invest directly in an index.

Asset allocation and diversification do not ensure a profit and may not protect against loss. There are special considerations associated with international investing, including the risk of currency fluctuations and political and economic events. Investing in emerging markets may involve greater risk and volatility than investing in more developed countries. Due to their narrow focus, sector-based investments typically exhibit greater volatility. Small company stocks are typically more volatile and carry additional risks, since smaller companies generally are not as well established as larger companies. Property values can fall due to environmental, economic, or other reasons, and changes in interest rates can negatively impact the performance of real estate companies. When investing in bonds, it is important to note that as interest rates rise, bond prices will fall. High-yield bonds have greater credit risk than higher quality bonds. The risk of loss in trading commodities and futures can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. The high degree of leverage that is often obtainable in commodity trading can work against you as well as for you. The use of leverage can lead to large losses as well as gains.

The WCA Fundamental Conditions Barometer measures the breadth of changes to a wide variety of fundamental data.  The barometer measures the proportion of indicators under review that are moving up or down together.  A barometer reading above 50 generally indicates a more bullish environment for the economy and equities, and a lower reading implies the opposite.  Quantifying changes this way helps us incorporate new facts into our near-term outlook in an objective and unbiased way.  More information on the barometer is found in our latest quarterly report, available at


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Kevin Caron, Portfolio Manager
Chad Morganlander, Portfolio Manager
Matthew Battipaglia, Analyst

Suzanne Ashley, Junior Analyst