Insight & Commentaries
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…
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…
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…
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…
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…
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…
We see the economy on a growth track, but after a year of strong returns and historically low volatility, some moderation to growth and risk appetite seems reasonable. Continued economic growth, without a notable pickup in inflation, remains our dominant view. Last year’s tax changes, and new federal spending initiatives, have the potential to lift investment and speed up growth. Risks to our outlook include rising trade and geopolitical tension, elevated asset prices in some areas, and rising interest rates. During the quarter, we made a few tactical adjustments to portfolios. We tilted portfolios toward large cap domestic value, and…
THE WEEK AHEAD Markets reprice risk as trade and interest rate risks emerge. MACROECONOMIC INSIGHT The Dow Jones Industrial Average lost more than 1,400 points last week, against a backdrop of trade actions and reprisals. Buying appears to be on hold, at least for now, following a year or more of solid gains for stocks. It is always hard to pinpoint which, the chicken or the egg, comes first when talking about markets and the economy. To our eye, the two work in conjunction and feed back into each other. We all recognize that an improving economy tends to promote…
THE WEEK AHEAD Federal Reserve meets this week and is widely expected to deliver another rate increase. MACROECONOMIC INSIGHT We are seeing a small downshift in the pace of growth, based on incoming data. While not outright deterioration, there appears to be some softening in global economic momentum. This is not yet a major concern of ours, but some mixed signals have caught our attention. Here is a partial list of some of some of the items that have shown recent weakness: 1) A three month decline in Chinese manufacturing surveys; 2) A three month decline in German Business confidence;…
THE WEEK AHEAD Busy week ahead for data as we begin to get an early read on February data. MACROECONOMIC INSIGHT Since early 2016, incoming data has told the story of improving global growth. Today, our WCA Fundamental Conditions Barometer (below) remains above 50 supports a bullish case. We attribute the 30% rise in U.S. stock values to improving earnings, which in turn, reflect better growth. Further augmenting the earnings outlook, and the run-up in stock values, was last year’s tax cut. That cut will begin to filter into reported profits in the months ahead, and into withholding tables very…
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