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We prepare to end 2017 with consumer and investor confidence running high, but we are mindful of potential longer-term speed bumps. Portfolios are neutrally weighted between stocks and bonds as we enter the fourth quarter. Full Text Here

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THE WEEK AHEAD We update our input tables to our long-run forecast and tactical top-down investment process. MACROECONOMIC INSIGHT Each quarter, we update a series of tables that lie behind our long run tactical asset allocation decisions. These are all forward-looking assumptions and are inherently imperfect estimates of the future. Still, these base-case assumptions are necessary and important inputs that form the basis for our top down investment process. The ratcheting down of our WCA Fundamental Conditions Barometer (currently near 50 vs. 75 at the start of the year), faster than expected rate increases, stubbornly low inflation, improving overseas trends,…

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THE WEEK AHEAD Markets (and the Federal Reserve (Fed)) get a read on the health of the labor market as the September Employment Report is released on Friday. MACROECONOMIC INSIGHT Friday’s report is expected to show that the economy added 70,000 jobs while the unemployment rate remained steady at 4.4%. While much airtime will be spent dissecting those headline figures, we want to focus on two other aspects of this report: the change in private payrolls (Chart A) and the yearly change in average hourly earnings (Chart B). While the trend for both of these figures is generally positive, recently…

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WASHINGTON CROSSING ADVISORS THE WEEK AHEAD Data points to above trend growth, below trend inflation, and no Fed action on rates. MACROECONOMIC INSIGHT Global and domestic growth continues to run above our long-run forecasts. A wide range of data suggests the global economy is performing well. For example, last week the European Central Bank raised their 2017 Euro-area growth forecast to 2.2%, the fastest pace since 2007. Meanwhile, the Federal Reserve Bank of Atlanta’s “GDP Now” model is tracking third quarter domestic growth near 3%. Japan is even growing at a healthy 2.5% pace, and China just reported a 7%…

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THE WEEK AHEAD The FOMC meets this week and is expected to deliver a rate increase. Wednesday’s announcement will be associated with a summary of economic projections and a press conference by the Chair. MACRO VIEW The return on cash hasn’t been much to write home about recently. As the economy picks up, expectations for short-term interest rates are perking up (graph below). A year ago, markets were pricing in an expectation for a 1.2% short-term interest rate by early 2019. Today, that same expectation is near 1.9%. As assumed cash returns rise, they compete against returns available on other…

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THE WEEK AHEAD The improving growth theme gets tested again this week with data on factory orders and employment. MACRO VIEW We are expecting to see a strong start to 2017, followed by a period of moderation through the year. We expect consumption to grow at a 5% annualized rate through the first quarter with investment growing at a 10% pace. If correct, the rolling four quarter average growth rate for the overall economy will be trending near 2.5% growth (chart below). This forecast incorporates our expectation for a March interest rate hike and recent readings from our WCA Fundamental…

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THE WEEK AHEAD We expect good reports this way on durable goods and manufacturing this week, consistent with other recent data points. The improvement in the business outlook is being clearly embedded in market expectations. MACRO VIEW It has been more than 90 months since the last recession. Expected tax cuts, infrastructure spending, and regulation are fueling consumer and business optimism. In turn, this optimism is helping lift the stock market to records. Given this, we want to spend a minute to remind ourselves how we got here. During the ’07-09 recession, the U.S. stock market had an average value…

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THE WEEK AHEAD President Trump addressed Chinese and Japanese currencies last week and reiterated his call for a “level playing field” for currencies. This week we revisit China and emerging markets where we remain underweight in the diversified core of asset allocation portfolios. MACRO VIEW Emerging markets (EM) are delivering less growth than they used to, but remain risky. Chart 1 below shows how EM growth is converging with developed markets in recent years.   Potential growth is dampened by slipping productivity (green) and capital investment (red). These factors explain most of the moderation in EM growth in recent years….

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THE WEEK AHEAD Data continues to come in relatively strong with last week’s employment report offering mostly good news. MACRO VIEW The January data continued to post positive momentum, supporting the bullish case for stocks. Friday’s January employment report was not an exception. Nonfarm payrolls rose 227,000 and beat most economist’s expectations. This is higher than the 180,000-200,000 range we’ve become accustomed to see over the past several quarters. The unemployment rate ticked up to 4.8%, but remains near what many consider “full employment.” A closer look at private jobs reveals still healthy year-over-year growth. This measure, which ignores government…

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THE WEEK AHEAD A surprise boost in optimism is impacting financial markets and has the potential to feed into growth as we start 2017.  The WCA Fundamental Conditions Index ends 2016 on a strong footing, suggesting better growth through the fourth quarter. MACRO VIEW Today’s Monday Morning Minute will be our last weekly commentary of the year, and we would like to say thank you to all our readers.  Our best wishes to you for a joyous holiday season and a prosperous 2017! Our final update is also a positive one for the stock market and the economy.  Although the…

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THE WEEK AHEAD A shortened week due to Thanksgiving.  Markets to focus on durable goods, Trump transition, and upcoming Italy vote. MACRO VIEW The market’s recent reaction to a Trump victory adds fuel to what was already an improving fundamental backdrop (graph, below). How are fundamentals improving?  For starters, the bottom-up S&P 500 12-month earnings forecast advanced from a monthly average of $123.52 in the first quarter to $129 currently.  Risk appetite improved and higher-risk stocks and bonds both outperformed their lower-risk counterparts.  Long-run inflation expectations firmed from 1.4% to 1.75%.  A pickup in China’s economy, firming commodity prices, the…

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THE WEEK AHEAD How the Trump win changes markets, the economy, and CONQUEST and DYNAMIC STRATEGIES portfolios. MACRO VIEW While light on details, the Trump economic vision is capturing the market’s attention.  The sweep by Republicans came as a shock to markets, and President-elect Trump’s acceptance speech highlighted spending and tax cut initiatives that are welcomed as “pro-growth.”  There is much still that needs to be worked out, and the devil is always in the details. If campaign promises are enacted as stated, sweeping changes to trade, taxes, government spending, and regulation are all on the table.  Most proposals on…

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THE WEEK AHEAD We look at credit, debt, and leverage given new data from the Federal Reserve (Fed). We conclude that private sector debt and leverage remain important contributors to both risk and growth. Elevated levels of private sector debt and leverage increase potential risks that should be addressed in portfolios as the cycle ages. MACRO VIEW Recent data from the Federal Reserve shows private sector debt remains elevated despite some household deleveraging. We continue to believe a relationship exists between private sector debt, the economic cycle, and equity market volatility, and that relationship is stronger today than years ago….

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THE WEEK AHEAD Federal Open Market Committee (FOMC) rate decision, projections, and press conference Wednesday afternoon should garner significant attention and will Likely sets the stage for a December tightening. MACRO VIEW This week’s FOMC meeting should set the stage for a December hike.  There is little in recent statements that lead us to believe a September tightening is in the cards.  Data since July was generally positive, opening the door for a more balanced statement.  Brexit failed to produce a worse case dislocation, and leading indicators appear resilient.  The WCA Fundamental Conditions Index rose through the summer months, and…

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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…

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