Econ – US

We expect the Federal Reserve to cut rates this week by 0.25% — the first cut since 2007. Last week, the European Central Bank signaled a willingness to cut rates and buy assets. Both banks are responding to signs of slower global growth and weakening trade. These actions would mark a turnaround in messaging from a year ago. At that time, most were expecting global rates to move higher as growth kept on an upward path. A Fine Line The central banks must walk a fine line between voicing a worrying message about growth and providing “insurance” against a potential…

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When Patience is a Virtue Patience is a virtue when it leads to good judgement. Last week, this kind of patience was on full display as Federal Reserve Chairman, Jerome Powell, delivered a dovish outlook on monetary policy. The more hawkish message of last summer and early fall is now gone, and rightly so given trends in the data since then. Specifically, a sharp spike in market volatility last fall, and clear signs of slowing global growth, has led to this moment. Ongoing Chinese trade and Brexit negotiations also compelled the change in attitude. We are happy to see the…

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Viewpoint 2019

Against a backdrop of worry over trade and rising interest rates, the United States economy continues to perform well. While equity markets generally declined in 2018, investors in the United States generally fared better than overseas. Moreover, most companies saw revenue, profits, and dividends grow in 2018, and we expect more to come in 2019. This annual Viewpoint, along with quarterly updates, provides an organized way of looking at the economy, financial markets, and your portfolio. The full report is available by clicking the link below.

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THE WEEK AHEAD Volatility picked up again last week as the Dow Jones Industrial Average fell by more than 3% on Wednesday alone. For the week, the Dow was down 4%, having bounced back from an intra-week drop of almost 6%. Wednesday’s drop marked the second day this year where the Dow fell by more than 3%. Sharp declines have become more common compared to past decades. Daily drops of 3% or more in the Dow occurred only twice during all of the 1960s; five times during the 1970s; fifteen times during the 1980s; and ten times during the 1990s….

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Although domestic growth remains strong, the outlook for growth in other parts of the world has weakened. Global Growth Weakens Global growth is weaker than anticipated in May, said the Organization for Economic Cooperation and Development (OECD) last week in their latest Economic Outlook. Trade tensions, tightening financial conditions in emerging markets, and political risks could all further dampen the outlook according to the report. The OECD trimmed their 2018-2019 global economic growth outlook by -0.1% to 3.7%, with rising differences across countries. While the United States remains steady, the OECD sees weaker growth throughout most of the world. Confidence…

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THE WEEK AHEAD We take a look at market valuations, return patterns, and the health of the economy for clues about what might come next. Signs of Growth Are “Full Speed Ahead” The economy continues to show signs of strong growth. Friday’s August jobs report showed strength in new jobs and wages. Not only did job growth exceed expectation at 201,000 net new jobs, but incomes grew near a 5% annualized pace. Moreover, the quarterly data on output and productivity is encouraging, too. According to the Bureau of Labor Statistics, output rose 5% in the second quarter, with increased productivity…

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THE WEEK AHEAD The economy continues to power along, led by strengthening investment. Investment The economy is doing far better than we had expected a few years ago. Mired in sub-par growth for years, the U.S. economy is accelerating by most measures we follow. Jobs are plentiful, corporate profits are up, and wealth measures are full. The economy grew by 4.1% in the second quarter, the best pace since 2014. Business investment is also turning up after a two year lull in 2014-2015. Through July, core capital goods orders surged to nearly the highest levels on record. 8.5% year-over-year to…

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WASHINGTON CROSSING ADVISORS THE WEEK AHEAD Against a good global backdrop, Turkey reminds us that risk still exists. So Far… So Good… Our WCA Fundamental Conditions Barometer remained stable over the past month (chart A, below). This is a good sign for the economy and markets. Because performance has firmed up, we have stopped cutting equity exposure, and remain tactically tilted toward stocks in Conquest tactical ETF portfolios. Chart A If we drill deeper into the barometer, we can get a better understanding of what is going on. The barometer has about one-third weighting in market based indicators of “risk…

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THE WEEK AHEAD Last Friday’s strong 4.1% second quarter GDP print figures to be on the minds of Federal Open Market Committee (FOMC) members as they meet this week. CONTRIBUTIONS TO GROWTH The 4.1% GDP growth rate in the second quarter is the fifth highest growth rate of the expansion (see graph below). Breaking down the significant Contributions to GDP Growth: Consumer Spending rose a very strong 4.0% during the quarter and contributed 2.7% of the total rate. Spending on services contributed 1.5% while spending on goods (durables plus nondurables) contributed 0.6%. While the jury is still out on the…

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THE WEEK AHEAD A move in the right direction? WCA PORTFOLIO INSIGHT After five months of slippage, the WCA Fundamental Conditions Barometer (chart, below) increased last month. The barometer takes into account market measures of risk appetite, indicators of U.S. economic health, and several inputs on conditions overseas. Trends in risk appetite are generally positive, but less robust than a six or nine months ago. By and large, most trends concerning the domestic economy, such as capital goods orders, employment, and earnings trends, are also quite good. We can’t call one month’s improvement a trend, but the interruption of the…

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THE WEEK AHEAD As we head into mid-year, we update some of our Long-Term Capital Market Assumptions that feed into the CONQUEST and Dynamic Strategies TACTICAL portfolios. WCA PORTFOLIO INSIGHT Long-Term View We start our analysis by observing what returns are available in markets. An investment in a 90-day U.S. Treasury bill today will earn an annualized return of 1.9%, for example. A year ago, this same Treasury bill offered a return of 1%. The increase is due to the Federal Reserve’s(Fed) deliberate effort to raise policy rates. While not a historically high rate by any measure, the direction is…

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THE WEEK AHEAD Earnings are up, but so too are worries over trade. We discuss this year’s changing market, and tactical adjustments WCA has made in CONQUEST and Dynamic Strategies portfolios. WCA PORTFOLIO INSIGHT Most of the surge in profit forecasts can be directly linked to last year’s tax cut. Profit forecasts for the S&P 500 jumped right after passage of President Trump’s Tax Cuts and Jobs Act (TCJA). The TCJA reduced the corporate income tax rate to 21% from 35%, instantly adding a ~20% tax “bump” to S&P 500 after-tax profit forecasts (blue line in graph). Some better economic…

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THE WEEK AHEAD Flush earnings still help, but higher interest rates and trade concerns hurt the bull case for stocks. MACROECONOMIC INSIGHT Not much happens when businesses, investors, and consumers decide to pull in their horns. Fortunately, the past couple of years have had most people feeling relatively optimistic about the outlook. Consumers are benefitting from full employment, rising wages, and increased wealth. Business owners and investors are reaping the benefits from a growing economy and large profits. For the past several years, no attractive “risk free” investment alternative existed to compete against riskier assets. One way to think about…

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THE WEEK AHEAD We update our barometer and tactical positioning for June. MACROECONOMIC INSIGHT Our forecast path for the WCA Fundamental Conditions Barometer declined in June (chart, below), and now sits just below 50. The decline in the index from above 70 at the start of the year suggests that risk appetite has waned somewhat. Accordingly, we trimmed back the equity exposure in the satellite portion of tactical portfolios to 45% from 55% last month. Why is this happening? A closer look at the data shows some evidence of softening in Europe, a build in domestic inventories, wider credit spreads,…

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THE WEEK AHEAD As the economy enters its tenth year of growth since the last recession, we look at just how far we’ve come. MACROECONOMIC INSIGHT We will soon begin the tenth year of economic expansion since the last recession ended. According to the National Bureau of Economic Research, the recovery from the last recession began in July 2009. With most of our tea-leaves pointing toward continued growth, we thought a look back at where we’ve come from is appropriate. Amid the turmoil of the Great Recession and 2009 Financial Crisis, the economy and financial markets were in distress. The…

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