Insight & Commentaries

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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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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THE WEEK AHEAD Against a good global backdrop, Turkey reminds us that risk still exists. THE CASE OF TURKEY Although the background for growth, particularly in the United States, appears good, we are reminded that the world is not without risk. The latest example of an economy in crisis is Turkey. After a period of heady growth, the country has fallen victim to a sliding currency, skyrocketing inflation and interest rates, and capital flight. The chart below shows the slide in the currency (orange line, right scale) superimposed on top of a declining stock of currency reserves (blue bars, left…

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THE WEEK AHEAD Strong economy drives earnings growth, risk appetite, valuations. A VERY GOOD QUARTER According to FactSet, second quarter results for the S&P 500 companies were strong, and technology companies led the parade. At the end of July about half of the S&P 500 companies had finished reporting financial results for the second quarter. On average, earnings per share were up 21%, thanks to tax reform and a good economy. So good, in fact, was the economy that sales rose 9.3% for the average S&P 500 company from a year before. These results are made all the more extraordinary…

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THE WEEK AHEAD Last Friday’s strong 4.1% second quarter GDP print figures to be on the minds of Federal Open Market Committee (FOMC) members as they meet this week. CONTRIBUTIONS TO GROWTH The 4.1% GDP growth rate in the second quarter is the fifth highest growth rate of the expansion (see graph below). Breaking down the significant Contributions to GDP Growth: Consumer Spending rose a very strong 4.0% during the quarter and contributed 2.7% of the total rate. Spending on services contributed 1.5% while spending on goods (durables plus nondurables) contributed 0.6%. While the jury is still out on the…

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THE WEEK AHEAD A move in the right direction? WCA PORTFOLIO INSIGHT After five months of slippage, the WCA Fundamental Conditions Barometer (chart, below) increased last month. The barometer takes into account market measures of risk appetite, indicators of U.S. economic health, and several inputs on conditions overseas. Trends in risk appetite are generally positive, but less robust than a six or nine months ago. By and large, most trends concerning the domestic economy, such as capital goods orders, employment, and earnings trends, are also quite good. We can’t call one month’s improvement a trend, but the interruption of the…

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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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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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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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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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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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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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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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