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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.

 

Chicago PMI

 

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

 


Disclosures

The information contained herein has been prepared from sources believed to be reliable but is not guaranteed by us and is not a complete summary or statement of all available data, nor is it considered an offer to buy or sell any securities referred to herein. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. There is no guarantee that the figures or opinions forecasted in this report will be realized or achieved. Employees of Stifel, Nicolaus & Company, Incorporated or its affiliates may, at times, release written or oral commentary, technical analysis, or trading strategies that differ from the opinions expressed within. Past performance is no guarantee of future results. Indices are unmanaged, and you cannot invest directly in an index

Asset allocation and diversification do not ensure a profit and may not protect against loss. There are special considerations associated with international investing, including the risk of currency fluctuations and political and economic events. Investing in emerging markets may involve greater risk and volatility than investing in more developed countries. Due to their narrow focus, sector-based investments typically exhibit greater volatility. Small company stocks are typically more volatile and carry additional risks, since smaller companies generally are not as well established as larger companies. Property values can fall due to environmental, economic, or other reasons, and changes in interest rates can negatively impact the performance of real estate companies. When investing in bonds, it is important to note that as interest rates rise, bond prices will fall. High-yield bonds have greater credit risk than higher quality bonds. The risk of loss in trading commodities and futures can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. The high degree of leverage that is often obtainable in commodity trading can work against you as well as for you. The use of leverage can lead to large losses as well as gains.

The WCA Fundamental Conditions Barometer measures the breadth of changes to a wide variety of fundamental data.  The barometer measures the proportion of indicators under review that are moving up or down together.  A barometer reading above 50 generally indicates a more bullish environment for the economy and equities, and a lower reading implies the opposite.  Quantifying changes this way helps us incorporate new facts into our near-term outlook in an objective and unbiased way.  More information on the barometer is found in our latest quarterly report, available at www.washingtoncrossingadvisors.com/insights.html.