Weekly (distribution list)
THE WEEK AHEAD Janet Yellen leads her final Federal Open Market Committee meeting of 2017 and will hold her final Press Conference as Chair on Wednesday. MACROECONOMIC INSIGHT With Jerome Powell set to take the reins of the Federal Reserve (Fed) from Janet Yellen next year, we wanted to analyze Chair Yellen’s economic legacy and give an assessment of the economy that Mr. Powell will inherit. Labor Market Last Friday’s November Employment report showed that 228,000 jobs were added during the month and the unemployment rate, at 4.1%, has fallen to its lowest level since the early…
THE WEEK AHEAD A Thanksgiving holiday-shortened week this week will see reports relating to business investment and minutes from the Federal Reserve Open Market Committee Oct 31-Nov 1 policy meeting. MACROECONOMIC INSIGHT Even though markets are pricing in good outcomes, risk assets can continue to perform well because monetary and fiscal policy remain supportive of growth and data reaffirms our conviction that the economy is on an expansion path. Valuations Full The value of U.S. equities is now over $28 trillion. At 145% of gross domestic product, this would suggest valuations are full. Since 2004, the market value averaged about…
THE WEEK AHEAD Producer, Consumer, Import, and Export prices are in focus this week as we recap third-quarter earnings and look down the road towards future earnings seasons. MACROECONOMIC INSIGHT According to FactSet, for the third quarter, companies have reported earnings growth of 5.9% and sales growth of 5.8%. In addition to these impressive gains, more companies are beating earnings per share and revenue estimates than average. For example: Of the companies that have reported, 74% have reported EPS above the mean EPS estimate. That 74% figure is above both the 1-year (71%) and 5-year average (69%). At the sector…
THE WEEK AHEAD A busy week ahead including a Federal Open Market Committee (FOMC) meeting, announcement on a selection for next Federal Reserve (Fed) Chair, possible release of some details for the tax plan, and a look at the September employment situation. MACROECONOMIC INSIGHT President Trump is said to be leaning toward naming current Fed governor Jay Powell as the next Fed chair. The President has previously indicated he will make his decision before he leaves on his next foreign trip next week. Friday’s employment report is expected to show the economy added 308,000 jobs in October and the unemployment…
THE WEEK AHEAD While markets are speculating about Federal Reserve appointments and handicapping tax reform, the earnings season kicks into high gear. MACROECONOMIC INSIGHT The earnings season kicks into high gear this week as markets remain focused on happenings in Washington. Roughly 40% of S&P 500 companies are set to report third quarter earnings this week and expectations are high. Strong economic performance, despite hurricane impacts, underlie optimistic analyst forecasts for corporate earnings. For the full year, 2017 S&P 500 operating earnings are expected to increase 9% from 2016, and high growth is reflected in above average valuations. The S&P…
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,…
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…
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%…
THE WEEK AHEAD We update our Fundamental Conditions Barometer as we flip the calendar to September. MACROECONOMIC INSIGHT After reaching 80 earlier this year, our Fundamental Conditions Barometer has settled in at “cruising speed” (see chart below). Last month we rebalanced the satellite portion of the Conquest Portfolios to reflect the Barometer’s reading of 50. Overall, trends in the data we monitor remain positive. Look no further than last Friday’s Durable Goods Orders for July. Excluding transportation July’s Durable Goods Orders grew 0.5% on a monthly basis while Core Capital Goods grew 0.4%. The labor market has also displayed signs…
THE WEEK AHEAD We forecast that the accelerating growth phase of the past year will flatten out in the months ahead. A ramp-up in growth and investor risk appetite over the past year, courtesy of the dual “reflation” and “Trump” trades, helped lift earnings and share prices to records and volatility fell sharply. Our most recent read of the data suggests the acceleration phase may be over, and the forecast path of our WCA Fundamental Conditions Barometer (below) is expected to return to 50. At 50, we expect near-term recession risk to be near historically average levels. Where we go…
The “reflation trade” that drove financial market behavior since the middle of last year lifted stocks and weighed on bond prices. This leaves us with an economy performing better and stock indices near records. Lower bond yields and higher equity valuations help lift short-term growth but also dampen our long-run return forecasts. In the months ahead, we expect to see the pace of improvement moderate compared to what we experienced over the past nine months. Equity allocations in portfolios were increased last summer, and we continue to maintain a modest tactical tilt toward large capitalization domestic stocks over bonds and…
THE WEEK AHEAD Markets digest last week’s failed vote on the American Health Care Act and begin to look forward to the upcoming earnings season. MACRO VIEW Congress abandoned a much awaited vote on The American Health Care Act on Friday. Uncertainty over the passage of the bill pressured equities, buoyed bonds, and weighed on the dollar last week. Markets recognize that prospects for potent tax cuts later this year was at least partly dependent on passage of the health care bill. Without funds resulting from the bill’s passage, the House of Representatives may struggle to pass a revenue neutral…
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