Closing Out 2015
Markets will digest data from the real estate market, as Tuesday sees the release of the S&P Case-Shiller Report from October and Pending Home Sales from November is released on Wednesday. Markets are closed on Friday for New Year’s Day.
The economy is closing 2015 with a whimper. This week we will get the Chicago Purchasing Managers index for December. Lately, this Index has been weak, reflecting a build of inventories and weak export markets. Chicago is just a regional survey but does a reasonably good job in predicting movements in the national survey which, in turn, is a reasonably good indicator of the cyclical part of economic performance. Lately, both the Chicago index and the national index have been below 50, indicating weakness in manufacturing. Given just the weak performance of manufacturing, we would expect to see an overall weak number for fourth quarter GDP (near 1.5%). This would be consistent with the overall tone of the data we have seen throughout the year — positive and below trend growth.
ASSET ALLOCATION PORTFOLIO POSTURE
LONG-RUN STRATEGIC POSTURE: Strategic allocations are set to reflect our long-run forecasts for key asset classes. We expect policy rates to remain low as central banks continue to push lower-for-longer rate strategies. Eventually, rates should rise back to more normal levels, but this is expected to happen gradually and unevenly. Fixed income returns are expected to lag current yields as rates rise. Equity returns will track moderate growth in global GDP with little to no further lift from margin expansion (margins are already elevated). Equity valuations appear reasonable and in line with historic multiples, so no additional return is being attributed to margin expansion.
Kevin Caron, Portfolio Manager
Chad Morganlander, Portfolio Manager
Matthew Battipaglia, Analyst
Suzanne Ashley, Junior Analyst
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