Insight & Commentaries

Q3 Tactical Asset Allocation 2018

The U.S. economy is accelerating into the second half of the year with growth tracking toward 4% in the second quarter. However, the yield curve has flattened significantly as the Fed presses forward with rate increases, and trade concerns create some unease. Consequently, our own read of the data has become more mixed and we have tactically reduced exposure to stocks during the first half. Portfolios are overweight value versus growth, and foreign developed versus emerging. The fixed income posture is tilted toward high quality and shorter duration credit versus long-duration Treasuries. We also have a tactical tilt toward REITs…

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2018 Viewpoint

Our 2018 Viewpoint begins on an optimistic note. Growth continues to pick up by most accounts, businesses are again investing, and asset values are near records. Confidence necessary for risk taking is apparent, and inflation remains at bay. On the other hand, we are now confronted with higher valuations in many asset classes, which we feel should eventually weigh on long-run returns. This annual Viewpoint, along with quarterly updates, provides an organized way of looking at the economy, financial markets, and your portfolio. Full Report Click Here

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The Case for Rising Dividends

We believe companies with a history of increasing dividends provide a good starting place in a search for fundamentally strong and growing companies. Importantly, steady dividend growth often follows consistent profitability and shareholder-focused management. A dividend growth perspective looks beyond today’s yield and considers other factors, such as quality, growth, risk, and value. A track record of dividend increases can be viewed as a tangible signal by a company’s management that they are both willing and able to boost a payment to shareholders. This commitment suggests quality fundamentals currently and an expectation of continued improvement into the future. Full Text

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Monday Morning Minute 070918

THE WEEK AHEAD As we head into mid-year, we update some of our Long-Term Capital Market Assumptions that feed into the CONQUEST and Dynamic Strategies TACTICAL portfolios. WCA PORTFOLIO INSIGHT Long-Term View We start our analysis by observing what returns are available in markets. An investment in a 90-day U.S. Treasury bill today will earn an annualized return of 1.9%, for example. A year ago, this same Treasury bill offered a return of 1%. The increase is due to the Federal Reserve’s(Fed) deliberate effort to raise policy rates. While not a historically high rate by any measure, the direction is…

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Monday Morning Minute 070218

THE WEEK AHEAD Earnings are up, but so too are worries over trade. We discuss this year’s changing market, and tactical adjustments WCA has made in CONQUEST and Dynamic Strategies portfolios. WCA PORTFOLIO INSIGHT Most of the surge in profit forecasts can be directly linked to last year’s tax cut. Profit forecasts for the S&P 500 jumped right after passage of President Trump’s Tax Cuts and Jobs Act (TCJA). The TCJA reduced the corporate income tax rate to 21% from 35%, instantly adding a ~20% tax “bump” to S&P 500 after-tax profit forecasts (blue line in graph). Some better economic…

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Monday Morning Minute 062518

THE WEEK AHEAD Flush earnings still help, but higher interest rates and trade concerns hurt the bull case for stocks. MACROECONOMIC INSIGHT Not much happens when businesses, investors, and consumers decide to pull in their horns. Fortunately, the past couple of years have had most people feeling relatively optimistic about the outlook. Consumers are benefitting from full employment, rising wages, and increased wealth. Business owners and investors are reaping the benefits from a growing economy and large profits. For the past several years, no attractive “risk free” investment alternative existed to compete against riskier assets. One way to think about…

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Monday Morning Minute 061818

THE WEEK AHEAD We update our barometer and tactical positioning for June. MACROECONOMIC INSIGHT Our forecast path for the WCA Fundamental Conditions Barometer declined in June (chart, below), and now sits just below 50. The decline in the index from above 70 at the start of the year suggests that risk appetite has waned somewhat. Accordingly, we trimmed back the equity exposure in the satellite portion of tactical portfolios to 45% from 55% last month. Why is this happening? A closer look at the data shows some evidence of softening in Europe, a build in domestic inventories, wider credit spreads,…

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Monday Morning Minute 060418

THE WEEK AHEAD As the economy enters its tenth year of growth since the last recession, we look at just how far we’ve come. MACROECONOMIC INSIGHT We will soon begin the tenth year of economic expansion since the last recession ended. According to the National Bureau of Economic Research, the recovery from the last recession began in July 2009. With most of our tea-leaves pointing toward continued growth, we thought a look back at where we’ve come from is appropriate. Amid the turmoil of the Great Recession and 2009 Financial Crisis, the economy and financial markets were in distress. The…

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Monday Morning Minute 052118

WASHINGTON CROSSING ADVISORS THE WEEK AHEAD WCA Barometer holds steady for second month as markets weigh growth, inflation, and rates. MACROECONOMIC INSIGHT Strong global demand has driven growth and may now be pushing up against supply constraints. Bottlenecks are leading to higher prices and raising concerns about inflation. Cash and bond markets have been pricing in expectations for firmer inflation and higher policy rates. Consider global commodity prices. Oil, aluminum, wood pulp, and lumber prices all began to spike a little over a year-ago. Oil is up 20%, aluminum is up 15%, pulp is up 25%, and lumber is up…

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Monday Morning Minute 050718

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…

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Monday Morning Minute 043018

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…

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Monday Morning Minute 042318

The WCA barometer holds steady through April, tactical stock / bond mix unchanged. MACROECONOMIC INSIGHT The last month’s data show signs of resilience following a sharp spike in volatility in February and March. The WCA Fundamental Condition Barometer (Graph 1, below) shows a forecast path that remains above 50, but is declining. Our forecast base case is unchanged from last month, suggesting some stability after some weakening trends in February-March. Thus the near-term prospects for continued growth are good, but some moderation looks reasonable. This forms the primary justification for our near-term view to be tactically overweight equities in asset…

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Monday Morning Minute 041618

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…

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Monday Morning Minute 040918

THE WEEK AHEAD Volatility continues amid headline noise on trade. MACROECONOMIC INSIGHT Recent headlines have been enough to unnerve even the most seasoned investor. The tension between the United States and the rest of the world seems to increase daily. On Friday, the United States threatened to levy another $100 billion of tariffs on Chinese imports, which would bring the total to $153 billion. Because the United States exported only $130 billion to China last year, it may prove tough for China to reciprocate in kind. While much of this is likely posturing ahead of some final agreement, the tone…

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