Quarterly Outlook
We publish this year’s Viewpoint 2022 amid ongoing recovery from an unprecedented pandemic. Signs of continued growth are apparent despite new COVID-19 variants and anticipated policy shifts. Long-run return expectations fall this year in as valuations and profit margins are elevated for stocks. For fixed income investors, surging inflation and expectations for rising rates are of primary focus.
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.
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…
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…
As we start the fourth quarter, the major U.S. stock market averages hover around a 0% return for the year. That unexciting performance masks extraordinary volatility — a 35% February-March decline and a 50% March-August bounce back. Other assets demonstrated similar volatility (graph, next page). Through September 30, Long-term U.S. Treasury bonds returned over 20%, and Bloomberg Barclays Aggregate U.S. Bond Index returned 6.5%. Short-term T-Bills returned about 0.7%, and gold is up 24%. Volatility again ruled the roost in 2020, and diversified portfolios generally did better than all stock portfolios. As we head into the final quarter of 2020,…
Executive Summary: The second quarter brought a surge in stock values predicated on three critical assumptions. First, fiscal and monetary measures would be sufficient to support an economy suffering a tremendous hit. Next, the economy could begin a process of “reopening” and avoid a second wave pandemic shutdown. Finally, progress will be forthcoming toward a treatment or vaccine for COVID-19. While the future could always play out differently than expectations, equity markets seemed willing to focus on positives, rather than lingering unknowns, throughout most of the second quarter.
Worries over rising rates and trade faded in 2019, prompting sizable gains in both bonds and stocks. Global growth seems to be firming and the United States is exhibiting stronger growth than most other developed nations as we start 2020. Low interest rates, rising wages, and record wealth is driving growth, but above average valuations reduce return expectations. This report covers Washington Crossing Advisors’ long-run views as we head into 2020. These top-down views are central to our tactical asset allocation decisions and recommendations.
Trade and Brexit worries are cutting into the outlook for global growth. Most forecasts now call for slower growth next year, below our 3.5% base case expectation. While growth estimates are holding up reasonably well in the United States, global central banks are easing. The Federal Reserve is also easing monetary policy, which is helping to support financial conditions. A plunge in global interest rates is raising recessionary red flags and forward looking cash and bond returns are declining as investors chase yield. Equity allocations are trimmed to neutral given signs of cooling in the data. Tactical tilts favor value…
The past few months have seen a marked decline in market volatility. Corporate earnings are holding steady and bond yields have declined, allowing stock values to recover from last fall’s rout. However, concerns about trade, capital investment, and global growth remain and are opening the door for central banks to ease. Our read of a broad range of data is better than six months ago, with domestic conditions winning out over foreign. Therefore, we maintain tactical tilts toward domestic over foreign, value over growth, and developed over emerging. Near-term trends in our WCA Fundamental Conditions Barometer lead us to maintain…
The S&P 500 returned 13.7% in the first quarter, the best quarterly performance since 2009. This follows almost a 20% drop in the S&P 500 during the fourth quarter. The concerns about global growth and rising interest rates, which contributed to last fall’s market selloff, appear to be easing. The WCA Fundamental Conditions “Barometer” advanced sharply in the past few weeks as signs emerged that growth may be picking up in the United States. Accordingly, equity exposure was increased and bond portfolio duration reduced across tactical asset allocation models. Full Report Click Here
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