Weekly (distribution list)
WASHINGTON CROSSING ADVISORS THE WEEK AHEAD Producer, Consumer, Import, and Export prices for April released this week. MACROECONOMIC INSIGHT Fixed Income Focus Corporations continue to exhibit good financial health, which has helped drive default rates down. According to Moody’s Investment Research, defaults by corporate borrowers are below average. Last year, about 1.4% of all corporate issues globally defaulted. The average since the early 1980’s is 1.5%, and the high water mark was 5% back in 2009. The decline in defaults stands in sharp contrast to rising corporate indebtedness as outstanding non-financial corporate credit reaches a record high as a percent…
WASHINGTON CROSSING ADVISORS THE WEEK AHEAD Big week for data and Fed policy this week. MACROECONOMIC INSIGHT We’ve seen some slowing in growth lately, but last week’s advance U.S. Gross Domestic Product report was encouraging. Readers of the Monday Morning Minute know that incoming data raised some red flags in the first quarter. Our Fundamental Conditions Barometer peaked with the passage of the tax act in December, declined through the remainder of the winter, and stabilized in April. According to last week’s report from the Bureau of Economic Analysis, the U.S. economy grew by an estimated 2.3% in the first…
THE WEEK AHEAD We look at how rising interest rates could harm returns for some highly-leveraged firms. MACROECONOMIC INSIGHT Some firm are paying more to borrow money, which is weighing on stock price performance. The world’s most widely used benchmark for pricing loans and specifying financial contracts is the London Interbank Offered Rate, or LIBOR. The rate for 30-day LIBOR stands near 2.4%, about double the level of a year ago, and most of the rise occurred in the last four months (chart, below). Over $5 trillion of business and consumer loans reset relative to LIBOR, making this a key…
We see the economy on a growth track, but after a year of strong returns and historically low volatility, some moderation to growth and risk appetite seems reasonable. Continued economic growth, without a notable pickup in inflation, remains our dominant view. Last year’s tax changes, and new federal spending initiatives, have the potential to lift investment and speed up growth. Risks to our outlook include rising trade and geopolitical tension, elevated asset prices in some areas, and rising interest rates. During the quarter, we made a few tactical adjustments to portfolios. We tilted portfolios toward large cap domestic value, and…
THE WEEK AHEAD Markets reprice risk as trade and interest rate risks emerge. MACROECONOMIC INSIGHT The Dow Jones Industrial Average lost more than 1,400 points last week, against a backdrop of trade actions and reprisals. Buying appears to be on hold, at least for now, following a year or more of solid gains for stocks. It is always hard to pinpoint which, the chicken or the egg, comes first when talking about markets and the economy. To our eye, the two work in conjunction and feed back into each other. We all recognize that an improving economy tends to promote…
THE WEEK AHEAD Federal Reserve meets this week and is widely expected to deliver another rate increase. MACROECONOMIC INSIGHT We are seeing a small downshift in the pace of growth, based on incoming data. While not outright deterioration, there appears to be some softening in global economic momentum. This is not yet a major concern of ours, but some mixed signals have caught our attention. Here is a partial list of some of some of the items that have shown recent weakness: 1) A three month decline in Chinese manufacturing surveys; 2) A three month decline in German Business confidence;…
THE WEEK AHEAD We assess the developing shift in fiscal policy and conclude that it is near-term bullish for growth and bearish for rates. MACROECONOMIC INSIGHT The recently published Budget of the United States, Fiscal Year 2019 introduces a large increase in government spending and cuts in taxes. The net effect of these changes introduces a very large swing in the government deficit this year and next. The deficit is expected to increase to 4.7% of gross domestic product from 3.4% in 2017, and this assumes the economy expands at a 3% clip, substantially faster than the 2% pace we’ve…
THE WEEK AHEAD MACROECONOMIC INSIGHT The drop in stocks from January 26 erased 10% from the market averages. There have been at least two dozen declines of 10% or better over the last 30-years, to put things in perspective. Very few other indicators show a spreading of concern into other areas of the markets or the economy. In the past week, corporate credit spreads remained unchanged; forecast inflation was down only slightly; and S&P 500 earnings forecasts rose. Investors can take some comfort in knowing that a broader reading of the market’s “tea leaves” continues to point toward growth. Source:…
MACROECONOMIC INSIGHT Volatility returned to markets last week as the Dow Jones Industrial Average pared gains for the year. For the week, the index dropped roughly 4% reducing the one-year price gain to 28%. Interestingly, the pickup in volatility was not accompanied by negative economic reports, a flattening yield curve, a widening of corporate spreads, or a cut in profit forecasts. The January employment report showed a net addition of 200,000 jobs and a 2.9% jump in hourly wage growth. Private payrolls are up a healthy 1.7% from a year ago, well above the 1% “stall rate” that has…
THE WEEK AHEAD President Trump delivers State of the Union Tuesday; Federal Open Market Committee (FOMC) decision Wednesday (no change expected); Manufacturing and Employment data should be strong. MACROECONOMIC INSIGHT There is plenty of good feeling about growth these days. Recently, the International Monetary Fund bumped their ’18-19 world growth forecast 0.2% to 3.9%. This is higher than our assumption of 3.4% growth. Domestic growth forecasts are also strong. The Federal Reserve Banks of Atlanta and New York see first quarter real U.S. growth at 3.4% and 3.1%, respectively. These are some of the best growth numbers we’ve seen this…
THE WEEK AHEAD Growth story continues to lift equities, but faster growth is beginning to stir concerns over rates and inflation. MACROECONOMIC INSIGHT We have seen constant upward revisions to earnings and growth estimates for the last year, creating the backdrop for good equity market performance. A combination of easy monetary policy, improving growth, and strong sentiment are driving continued upside surprises for growth. Leading economic indicators remain strong, employment trends are solid, business investment is picking up, and order rates for durable goods are surging. Our own WCA Fundamental Conditions Barometer (below) surged through the later part of 2017…
WASHINGTON CROSSING ADVISORS THE WEEK AHEAD A relatively quiet week for economic data, but new records on the Dow and S&P 500 have us thinking again about the “big picture.” MACROECONOMIC INSIGHT With the Dow just surpassing 25,000 and the S&P 500 crossing 2,700 for the first time in history last week, we thought it makes sense to pause and take a step back. As we point out in our Viewpoint 2018, we see the growing economy as the key driver of the market’s record-breaking performance, and there is clear evidence that growth continues. However, we must also point out…
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