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Barometer Update

The Federal Reserve (Fed) releases the minutes from July Federal Open Market Committee (FOMC) meeting on Wednesday. MACRO VIEW Credit spreads are tighter.  Commodity prices are firmer.  More stocks are participating to the upside.  Financial conditions within the banking system are improving.  These are some of the “high frequency” items that are on the mend this year.  As this happens, equity markets are performing better. Our own WCA Fundamental Conditions Barometer (below) is telling a similar story.  Around the time markets began to price in a less-hawkish Fed earlier in the year, conditions began to firm.  Commodities ended their freefall. …

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The Week Ahead

The data supports an economy gathering momentum into the third quarter.  This week brings some additional data on retail sales and consumer sentiment. MACRO VIEW The July employment report was strong.  Jobs rose 255,000 in the month, adding to the 292,000 increase in June.  These increases contrast sharply with the 84,000 average job gain in April and May.  The strength in jobs suggests income and spending are also picking up.  The Federal Reserve of Atlanta now estimates the economy will grow 3.8% in the third quarter.  Growth averaged just 1% in the fourth quarter of 2015 and first quarter 2016….

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Viewpoint

Friday’s July employment report is the big number this week.  This indicator is a focal point for the Federal Reserve (Fed) and has been very erratic of late.  The 6,000 job loss in May was shockingly poor, but it was followed by a better-than-expected 265,000 job gain in June.  Will the real labor market please stand up?  A Bloomberg survey reveals a street expectation of 171,000 jobs and a 4.8% inflation rate. MACRO VIEW Last week’s Gross Domestic Product (GDP) report showed an economy growing at just 1.2%.  This headline figure will be revised further, but taken at face value,…

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Markets Digest Brexit

Britain’s decision to leave the European Union (EU) reflects widespread dissatisfaction with EU governance.  The rejection of EU governance highlights the inherently unstable nature of the organization.  If individual members experienced long-run benefits, defections would not occur.  Instead, the people of Europe would press for a formal merger.  If individual members become dissatisfied, these countries are likely to break away.  Why would a dissatisfied and democratic country like the United Kingdom look to remain?  Most, including us, believed the vote would lean toward maintaining the status-quo.  This exit vote marks the first tangible step backward from the decades old vision…

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Weekly Comment

The Doha oil talks concluded with a resounding thud over the weekend, as media sources reported an abrupt end to talks aimed at curtailing oil supply.  Iran’s absence at the meeting was cited as a primary catalyst for the end of talks.  We expect oil to trade lower, as markets unwind some of oil’s recent run-up that occurred in anticipation of more positive news.  Brent crude closed Friday 14% above its 100-day moving average and more than 50% above the January lows near $26.  Given the elevated correlation between credit spreads and oil prices, we would not be surprised to…

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WCA Weekly Update

Light economic data from the United States expected this week, and the European Central Bank (ECB) is expected to deliver additional monetary stimulus.  China releases February’s Merchandise Trade Balance, Consumer Price Index, and Producer Price Index while Japan and the EU both release their latest GDP prints. MACRO VIEW We are looking for signs of an upturn in the data when we update our WCA Fundamental Conditions barometer and forecasts next week.  For now, we view the recent stabilization in commodities and better tone in the stock market as providing some reason for optimism, but we need further evidence that…

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Full Report WHAT ’S DRIVING GROWTH? Asset Allocation Update Fourth Quarter, 2015 From 1980 to 2007, the economy grew near a robust 3-3.5% trend growth rate throughout the 27-year period. The period began with the Dow at 840 and ended 2007 with the Dow over 13,000. Recessions were of the normal variety, with business slumps followed by robust recoveries and expansions. Technology, an expanding workforce, a pervasive spirit of entrepreneurial risk-taking, freer trade, lesser regulation, and reduced tax burdens all fostered growth. This 27-Year Period Saw: 1. GDP grow to $15 trillion from $6.5 trillion, 2. Household net worth grow to $67 trillion from $10…

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Next Up: The Fed

The world economy continues to grow at half-speed as emerging economies downshift from a period of rapid and credit-fueled growth. At the same time, developed economies like the United States appear to be growing at a slow-but-steady pace. Before the last recession, emerging economies grew near 9% and developed economies grew near 3%. Today, those growth rates stand nearer to 4% and 1.8%, respectively. The world’s economies are collectively growing at a little more than half as fast as they were just a few years ago. Financial market conditions are tightening, however, and this introduces some downside risk. Financial market…

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This week brings more information on the economy’s performance including Friday’s August employment report.  The rise in volatility comes just weeks before the Federal Reserve (Fed) is expected to decide on the timing of the first rate increase in a decade.  Consequently, the focus will be on how the recent spike in market volatility is sustained and to what extent it feeds back into the real economy.  While last week’s tumult is probably too recent to register much of an impact on the employment report, each new piece of information from here will be evaluated from the perspective of how…

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We see higher long-run returns from emerging markets after a five year period of sideways performance and as returns in recent years push the Morgan Stanley Capital International (MSCI) EM Index well below the long-run trend (chart below).  We are currently expecting long-run EM equity returns to be about 1% higher than our current long-run domestic equity return, now that the emerging markets have suffered through five years of sideways market action and underperformance versus developed equity markets.  The multi-year slog for emerging market investors means that major EM indices remain near the levels seen during the 2008-2009 recession, despite…

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Greece’s Troubles

Greece’s troubles enter a new and uncharted phase this morning, as Greek negotiators abandoned talks this weekend with creditors and, instead, called for a July 5 referendum where the Greek people will vote on whether they agree with the latest proposal by creditors (which actually no longer exists).  Greece’s creditors rejected Greece’s request for an extension of the current loan program, which means that the Greek government will not have access to a remaining 16 billion Euros of additional funding.  Consequently, the Greek government will most likely miss a €1.5 billion Euro payment due to the International Monetary Fund (IMF)…

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The May employment report was solid and brings the three-month average job growth number to 206,000. The unemployment rate of 5.5% is within a range that could be considered within earshot of “full employment.” Wages are picking up modestly, as hourly earnings continue to show signs of lift (now above 2% year over year). Hours worked remain relatively steady. Consequently, the “output gap” continues to narrow, and all signs are pointing to a rate increase by the Federal Reserve (Fed) later this year. This action is out of step with broader global indicators of growth, and this was highlighted by…

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Year Six and Counting

Year Six and Counting This Friday will bring another employment situation report, and expectations are for another addition of 248,000 jobs with the unemployment rate expected to hold steady near 5.5%. To put the progress in perspective, we thought we would use this week’s News You Can Use to lay on the table a simple overview of the economic progress made to date.  We are now six years beyond the deepest recession since the Great Depression, and we are beyond the recovery phase and into the expansion phase.  Although we’ve seen some slippage in the data of late, the broader…

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The dollar halted its relentless rise of the past few months last week as the Federal Open Market Committee (FOMC) offered a set of macro forecasts that were much weaker than the markets expected.  Forecasts were cut across the board for growth and inflation for both 2015 and 2016.  The longer run expectation for inflation remained at 2%, while the longer run expectation for unemployment was reduced to 5-5.2%.  At the same time, the FOMC (as expected) removed their “patient” language in describing their posture with regard to the timing of an initial rate increase.  The combination of the lowered…

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Published on Mar 16, 2015 Our Market Monitor has a list of stocks to buy that may provide some stability for your portfolio.

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