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Some Start of Year Housekeeping At the start of each year, we take some time to lay out the expectations that drive tactical decisions in the CONQUEST portfolios. We also engage in a few “housekeeping” activities to keep portfolios properly aligned with their respective benchmarks. The 2019 Viewpoint is now available and is a great resource to accompany the CONQUEST Tactical ETF portfolios. To order hard copies of the report, please drop us an email with the number of reports you want sent to you. CONQUEST 2019 Housekeeping Increasing Allocation to “Satellite”: As we discuss in our 2019 Viewpoint, we…
Closing out short-duration tactical tilt as curve flattens. Ahead of the Curve We increased duration in portfolios as the long-term Treasury yields fall below 3%. Throughout the year, we pointed out that foreign conditions were weighing on the outlook. Growth expectations are lower now than in the beginning of the year, and many stock markets around the world are negative for the year. Bulls appear to be pulling in their horns amid concerns over trade, Brexit, and higher short-term interest rates. While Treasury bond yields have been rising for most of the year, that trend now appears to have…
An update on CONQUEST tactical portfolio strategy as we get set to close out the year. How About the Economy? Why should an investor care about keeping track of the economy? Isn’t it enough to just create a “set it and forget it” portfolio? We think investors should care about the economy for two reasons. First, theups and downs of the economy creates risks to avoid and opportunities toexploit. Second, the size of the economy determines the value of the stockmarket and drives long-run return. This is why we, as active managers, devoteso much time evaluating economic data. Near-Term…
November’s Data If all you did was focus on the United States’ economy, you would conclude that October was a very good month. Over the past two weeks we learned that in October: Workers hourly wages shot up 3.1% from a year earlier, the best performance in a decade; U.S. Manufacturing activity remains solid (the Institute for Supply Management’s Purchasing Manager’s Survey is solidly in the 55-60 range); Core domestic retail sales are up a whopping 5%, year over year, continuing a very strong upward trend. These sorts of readings are unmistakable positives for the United States’ economy, and in…
We update our WCA Fundamental Conditions Barometer for October and consider what might be driving some of the recent pickup in equity market volatility. Foreign Conditions Remain Weak Evidence continues to mount that much of the global economy is coming under pressure. Last week brought news that China’s manufacturing sector worsened in October, along with output in September in South Korea,Japan, and Taiwan. A chill is also taking hold in Europe, evidenced by a halving of the third quarter growth rate, just as inflation is picking up.Emerging markets finished out October with losses, evidencing growing doubts about growth. Our WCA…
Ten Years After Looking back over the past ten years, the U.S. economy and stock market emerged as unlikely winners. A decade ago, Lehman Brothers and dozens of other financial firms were in the midst of collapse. In short order, the financial system and economy entered into a very dark period, culminating in a deep and painful recession. Equity markets fell by over 50% and 8.7 million Americans lost their jobs as the unemployment rate soared to 10%. From those depths, a recovery took hold and led to an expansion which endures today. Employment rolls are again full, as 20…
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…
Full Steam Ahead The Federal Reserve meets September 25-26 to discuss next steps for monetary policy and interest rates. Firming inflation, strong growth, and low unemployment all point toward another increase in the federal funds rate. If the Federal Reserve does raise rates as expected, the federal funds rate will be at 2.25%, which will be above the central bank’s forecast inflation rate, but well below where rates peaked in past tightening cycles (chart, below). Real Rates are Back With short-rates equal to inflation, the “real” interest rate is no longer negative. How high the rate actually moves above the…
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…
THE WEEK AHEAD Against a good global backdrop, Turkey reminds us that risk still exists. THE CASE OF TURKEY Although the background for growth, particularly in the United States, appears good, we are reminded that the world is not without risk. The latest example of an economy in crisis is Turkey. After a period of heady growth, the country has fallen victim to a sliding currency, skyrocketing inflation and interest rates, and capital flight. The chart below shows the slide in the currency (orange line, right scale) superimposed on top of a declining stock of currency reserves (blue bars, left…
Our 2018 Viewpoint begins on an optimistic note. Growth continues to pick up by most accounts, businesses are again investing, and asset values are near records. Confidence necessary for risk taking is apparent, and inflation remains at bay. On the other hand, we are now confronted with higher valuations in many asset classes, which we feel should eventually weigh on long-run returns. This annual Viewpoint, along with quarterly updates, provides an organized way of looking at the economy, financial markets, and your portfolio. Full Report Click Here
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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