Insight & Commentaries

Expectation Setting

Investor expectations are usually anchored by central bank expectations which is why central bank statements deserve much attention. This Wednesday’s update on monetary policy from the Federal Open Market Committee (FOMC) is especially important given the FOMC’s recent pivot to “patience.” Market expectations are now set for an 85% probability of no further rate increases this year. The process of reducing short-term rate expectations, which began last fall, has now rippled through global financial markets, dampened volatility and helped buoy stocks so far in 2019. As the Federal Reserve gets ready to release an updated “dot plot” this Wednesday, the…

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Central Banks Fall In-Line The global economy worsened in recent months by most accounts, but policy changes are now in place that could foster some improvement. Central banks in the United States, China, and Europe recently began moving toward greater accommodation — a major shift from early last fall. The Federal Reserve is telegraphing a need for “patience”, China has unveiled tax cuts and increased bank lending, and the European Central Bank (ECB) is now signaling renewed stimulus. Slipping growth is the reason cited for most of this renewed accommodation. Good Growth, Reasonable Valuation The United States growth engine appears…

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THE WEEK AHEAD Is A Turn At Hand? If the U.S. expansion makes it to March, it will match the 1990s expansion as the longest on record. But the last few months have seen a slowing in global growth and a pickup in market volatility. Even though the current data flow remains mixed, global growth could improve because worries over trade and tightening monetary policy have faded and policy changes suggest stabilization. Our WCA Fundamental Conditions Barometer (chart, below), which measures broad changes in the growth outlook, improved slightly in the past month, but remains at levels suggesting some continued…

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Global stocks continue to gain ground compared to bonds (chart, below). Headlines on trade, the budget, and Brexit are recent market movers. The resolution of these issues, yet unknown, could shape how the rest of the year plays out. A bullish scenario envisions growth returning to the globe as nations reach compromises. An intensification of these issues, or if left unresolved, could further darken the outlook. Slowing growth in China, softening sales of homes and automobiles, weak retail sales, and a sharp decline in European industrial production are the latest signs of stress. The adoption of a “wait and see”…

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When Patience is a Virtue Patience is a virtue when it leads to good judgement. Last week, this kind of patience was on full display as Federal Reserve Chairman, Jerome Powell, delivered a dovish outlook on monetary policy. The more hawkish message of last summer and early fall is now gone, and rightly so given trends in the data since then. Specifically, a sharp spike in market volatility last fall, and clear signs of slowing global growth, has led to this moment. Ongoing Chinese trade and Brexit negotiations also compelled the change in attitude. We are happy to see the…

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Global Trends Remain Negative The contrast in performance between the U.S. economy and the rest of the world is a major theme these days. Since the beginning of 2018, a marked worsening of foreign conditions is obvious, and we expect our WCA Fundamental Conditions Barometer to register weakness when it is updated next week.  Globally, we see energy and industrial metals trending lower. In Asia, we see financial conditions tightening as Chinese manufacturing fades. Brazilian industrial production has slid. European growth is slowing as financial conditions and the business sentiment turn down. The foreign piece of the global outlook is…

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Some Start of Year Housekeeping At the start of each year, we take some time to lay out the expectations that drive tactical decisions in the CONQUEST portfolios. We also engage in a few “housekeeping” activities to keep portfolios properly aligned with their respective benchmarks. The 2019 Viewpoint is now available and is a great resource to accompany the CONQUEST Tactical ETF portfolios. To order hard copies of the report, please drop us an email with the number of reports you want sent to you. CONQUEST 2019 Housekeeping Increasing Allocation to “Satellite”: As we discuss in our 2019 Viewpoint, we…

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Viewpoint 2019

Against a backdrop of worry over trade and rising interest rates, the United States economy continues to perform well. While equity markets generally declined in 2018, investors in the United States generally fared better than overseas. Moreover, most companies saw revenue, profits, and dividends grow in 2018, and we expect more to come in 2019. This annual Viewpoint, along with quarterly updates, provides an organized way of looking at the economy, financial markets, and your portfolio. The full report is available by clicking the link below.

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Closing out short-duration tactical tilt as curve flattens. Ahead of the Curve   We increased duration in portfolios as the long-term Treasury yields fall below 3%. Throughout the year, we pointed out that foreign conditions were weighing on the outlook. Growth expectations are lower now than in the beginning of the year, and many stock markets around the world are negative for the year. Bulls appear to be pulling in their horns amid concerns over trade, Brexit, and higher short-term interest rates. While Treasury bond yields have been rising for most of the year, that trend now appears to have…

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An update on CONQUEST tactical portfolio strategy as we get set to close out the year. How About the Economy?   Why should an investor care about keeping track of the economy? Isn’t it enough to just create a “set it and forget it” portfolio? We think investors should care about the economy for two reasons. First, theups and downs of the economy creates risks to avoid and opportunities toexploit. Second, the size of the economy determines the value of the stockmarket and drives long-run return. This is why we, as active managers, devoteso much time evaluating economic data. Near-Term…

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November’s Data If all you did was focus on the United States’ economy, you would conclude that October was a very good month. Over the past two weeks we learned that in October: Workers hourly wages shot up 3.1% from a year earlier, the best performance in a decade; U.S. Manufacturing activity remains solid (the Institute for Supply Management’s Purchasing Manager’s Survey is solidly in the 55-60 range); Core domestic retail sales are up a whopping 5%, year over year, continuing a very strong upward trend. These sorts of readings are unmistakable positives for the United States’ economy, and in…

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We update our WCA Fundamental Conditions Barometer for October and consider what might be driving some of the recent pickup in equity market volatility. Foreign Conditions Remain Weak Evidence continues to mount that much of the global economy is coming under pressure. Last week brought news that China’s manufacturing sector worsened in October, along with output in September in South Korea,Japan, and Taiwan. A chill is also taking hold in Europe, evidenced by a halving of the third quarter growth rate, just as inflation is picking up.Emerging markets finished out October with losses, evidencing growing doubts about growth. Our WCA…

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