Weekly (distribution list)
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…
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.
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…
China has been a major contributor to the global growth story in recent years, and has had a big impact on developments in foreign and emerging markets. As we’ve noted in previous commentary, we have been seeing some weakening in growth outside the United States while growth here remains strong. A 30% drop in the Chinese stock market, a sharp reversal in the Chinese currency, and slowing output growth all point to accumulating foreign sector weakness. Within China, the Chinese government has increased stimulus as evidenced by a recent surge in local government bond issuance (chart, below), and the Peoples…
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….
The Bond Market Stirs The U.S. 10-year Treasury bond yield backed up toward 3.25% last week — levels not seen since 2011. Comments by Federal Reserve Chairman Jerome Powell point toward higher rates, perhaps higher than the market currently expects. Economic growth remains strong, labor conditions are growing tighter, and inflation expectations are becoming less clear. Markets have heretofore priced in a very shallow path for future rate increases, but that perception may now be changing given an unemployment rate near 50 year lows and market-implied long-run inflation forecasts are above 2% and moving higher. The net effect of changes…
Ten years after the financial crisis, the United States equity, real estate, and job markets are back to records. Household wealth has, therefore, surged to a record $106 trillion. Most of the trends we see in the domestic data flow remain strong, although conditions overseas paint a less compelling picture. With much of the slack in the domestic economy gone, and inflation near target, we expect the Federal Reserve to continue normalizing interest rates. Portfolios are tactically overweight value stocks, domestic and developed equities, short duration Treasuries, and real estate. Tactical underweights include growth, foreign and emerging markets, long-duration Treasuries,…
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…
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 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…
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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