Conquest
A slowdown in business spending and concerns about slowing employment and services add new challenge to growth story. Our near-term forecast of conditions weakens somewhat, causing us to tactically reduce equity exposure from a large overweight to a small overweight in tactical portfolios.
This week, the Federal Reserve meets to decide on interest rates. Most expect no change in rates, but inflation worries are leading to calls for the Fed to ease off the monetary throttle. The debate centers on whether recent inflation signs are permanent or transitory. The causes of today’s inflation may be linked to bottlenecks, federal spending, or a sharp rise in the money supply. Whatever the reason, the debate is likely to shape policy and market returns. Evidence of Inflation’s Return Inflation is the change in purchasing power of money, reflected in prices. The consumer price index (CPI) basket…
As the economy reopens, we believe growth is set to surge. The United States is well along the path on vaccination, which is unleashing months of pent-up demand. Meanwhile, other parts of the world are lagging in vaccinations and confronted with potential challenges, including a stronger dollar. Given continued signs of progress and growth in the United States, we refocus tactically around domestic and high-quality assets. We also maintain a tactical overweight to equity over bonds, given incoming data as we enter the third quarter.
Our economy grows decade to decade, with corporations capturing an increasing share of global income in the form of profits in recent years. Along the way, low interest rates prompted growth, encouraged risk-taking, and pumped up the value of future profits. It is not surprising, then, that stocks have enjoyed a historic rise, achieving great returns far above other asset classes. Not even a global pandemic was able to short-circuit this wealth creation process. In this week’s commentary, we revisit an old idea — namely that real factors dominate growth and stock returns in the long-run, while illusory factors can…
The U.S. stock market has been on a tear of late, rising 56% in value, or $18 trillion, in the last year. Two-thirds of the gain came in the six months since October. Surging stock values mirror last spring’s rapid plunge, leaving many feeling elated, unnerved, and anxious. Are expectations for the world ahead justified and fairly factored into stock prices? Or is the bull run reflecting unrealistically high hopes? A Pretty Penny In our view, valuations are full. By most metrics, we see stock values at high levels. Just look at the value of U.S. stocks at $48 trillion…
Portfolio managers Kevin Caron and Chad Morganlander discuss tactical positioning headed into Q2.
Key Points: Vaccines Spur Growth Rebound U.S. Profits Recover to Pre-Pandemic Levels High U.S. Savings to Fuel Growth Stronger Dollar Favors Domestic Tilt Valuations, Rates, and Taxes are Risks Much has changed in the past quarter. A new administration and new congressional leadership has emerged in Washington. Meanwhile, a COVID-19 vaccination rollout is accelerating throughout the United States and some other parts of the world. Speculative fervor has rippled through some parts of equity markets while bond investors fret about rising interest rates. This quarter we address how these changes are shaping the environment, creating challenges and opportunities for tactical…
While risk-taking remains in fashion and more stimulus is on the way, we are trimming back some equity exposure. We now forecast some tempering in the outlook ahead (Chart A, below) after a long stretch of improving conditions. As a result, we reduced stock exposure to 67% from 80% and increased bond exposure to 33% from 20%. CONQUEST tactical asset portfolios remain overweight stocks versus bonds, only less so. Chart A WCA Fundamental Conditions Barometer High Hopes Since the governments and central banks around the world went “all-in” to save the economy from the pandemic last spring, wealth has exploded….
Many are expecting vaccinations to lead to a robust recovery this year. Return to normal and restart of the in-person economy should encourage growth and be celebrated. At the same time, the return to growth could also weaken the case for continued fiscal and monetary ease. And once restarted, the globe faces challenges. The tensions and ailments that existed before the pandemic are still with us. The path appears to be forward but it will not likely be a straight line. Last year’s pandemic-induced downturn was out-and-out different from recessions past. For this reason, we should see recovery as a…
A look at surging data as we head into the close of the year.
A month after the announcement of the first highly effective COVID-19 vaccine, positive momentum is building. Potentially game-changing vaccines, a new round of government spending, and continued, pedal-to-the-metal monetary policy are nurturing a boom environment as we end a most challenging year. While COVID-19 cases grow globally, and in the wake of the election, it is easy to lose track of market trends. In no particular order, here are a set of observations about recent trends worth noting. Observations: The value of all U.S. stocks is nearing $42 trillion, or 2 times the whole economy’s size ($21 trillion GDP). High…
Investment returns are the reward sought by all investors, not small returns or unpredictable returns, but large and guaranteed ones. Unfortunately, those sorts of returns are imaginary. This is not to say that estimation, a more respectable form of imagination, is not in widespread practice. All investors imagine some sort of plausible future of some kind, with some sort of expected reward. These imaginings are behind every dollar invested in the world today. “By the end of the next decade, quite a way off, there will be a pandemic, and stock investors will achieve record wealth.” These words, if uttered…
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