Insight & Commentaries
Full Report WHAT ’S DRIVING GROWTH? Asset Allocation Update Fourth Quarter, 2015 From 1980 to 2007, the economy grew near a robust 3-3.5% trend growth rate throughout the 27-year period. The period began with the Dow at 840 and ended 2007 with the Dow over 13,000. Recessions were of the normal variety, with business slumps followed by robust recoveries and expansions. Technology, an expanding workforce, a pervasive spirit of entrepreneurial risk-taking, freer trade, lesser regulation, and reduced tax burdens all fostered growth. This 27-Year Period Saw: 1. GDP grow to $15 trillion from $6.5 trillion, 2. Household net worth grow to $67 trillion from $10…
This Friday’s employment report took on some additional importance last week as the Fed reminded markets that they remained focused on incoming data for guiding their decision regarding a rate hike in December. Last week’s policy statement was interpreted as more hawkish, since it referred to monitoring data for determining a rate hike “at its next meeting.” Some interpreted the mention of the specific calendar date as an indication of greater hawkishness, after several weeks of increasing speculation that a rate hike would be pushed further out into 2016. The Fed’s posture seems to lean in the opposite direction of…
The Federal Reserve (Fed) meets on interest rates this week, and two indicators of October manufacturing activity are expected to indicate weakness through the month. Expectations for an imminent rate hike have been moving further out as global growth disappoints. The International Monetary Fund (IMF) recently cut their forecast for global growth to just 3.1% this year, compared to 3.4% growth last year. The globe is struggling with an adjustment to a lower growth trajectory following a series of credit and investment booms. The latest indications of declining growth came from the Mario Draghi and the People’s Bank of China…
The WCA Fundamental Conditions Barometer remains weak reflecting slower global growth. Our updated forecast has the barometer tracking toward 43 for October and remaining in the 40-45 range for the fourth quarter of the year. The bright spot remains domestic final demand which continues to plow forward on steady improvement in employment and wages. The pickup we saw from the second quarter is not continuing into the third quarter and both the IMF and the Atlanta Fed’s GDP Now forecast are being trimmed. The IMF again revised its global growth rate down to an estimated 3.1% for 2015 and the…
Earnings Season Ahead The third quarter is over, and companies will begin reporting soon. Expectations are for a 5% decline in earnings, according to a FactSet survey. If so, the decline will be the second in a row and the first back-to-back decline since 2009. Still, we see corporate balance sheets and cash generation at very robust levels, but the composition of sources and uses of cash are shifting (more on this below). The usual suspects will be identified as sources of weakness. A strong dollar, weak commodity prices, and slower overseas growth will top the list of challenges. The…
The world economy continues to grow at half-speed as emerging economies downshift from a period of rapid and credit-fueled growth. At the same time, developed economies like the United States appear to be growing at a slow-but-steady pace. Before the last recession, emerging economies grew near 9% and developed economies grew near 3%. Today, those growth rates stand nearer to 4% and 1.8%, respectively. The world’s economies are collectively growing at a little more than half as fast as they were just a few years ago. Financial market conditions are tightening, however, and this introduces some downside risk. Financial market…
The United States continues to make progress. Yes, manufacturing slowed during the summer, but the rest of the economy is doing well. Demand for goods and services is holding up. More Americans are becoming employed and very few are filing for unemployment insurance. For the first time in years, the percentage of the population with jobs is rising. Income and spending are rising, too. With the unemployment rate at 5.1%, the Fed is nearing its first rate increase in a decade. The Fed believes that the best way to forecast inflation is by looking at labor market slack. To measure…
This week brings more information on the economy’s performance including Friday’s August employment report. The rise in volatility comes just weeks before the Federal Reserve (Fed) is expected to decide on the timing of the first rate increase in a decade. Consequently, the focus will be on how the recent spike in market volatility is sustained and to what extent it feeds back into the real economy. While last week’s tumult is probably too recent to register much of an impact on the employment report, each new piece of information from here will be evaluated from the perspective of how…
THE WEEK AHEAD Markets suffered losses last week as investors weighed a variety of threats to global growth, notably China. Commodities remain under pressure and emerging markets continue to feel the pinch from global slowing. As the dust settles, we believe the United States will remain an attractive destination for global capital. We continue to focus strongly on quality and consistency in equity selection while tactical allocations have been moved closer to policy portfolio allocations. Volatility is likely to remain elevated. Update on Our Outlook The past week again reminded investors that volatility is still with us. Since 2012, stock markets…
With 38 days to go before the Fed’s September rate decision, we see some signs of risk aversion in markets and continued signs of weak growth outside our borders. Here are just a few examples. Credit spreads spiked last week, as the difference between the Moody’s Baa Corporate Bond Yield®, which acts as a credit index, and the long-term U.S. Treasury bond spiked above 230 basis points (it was 180 basis points back in April). There is a growing number of declining equity issues across the various U.S. exchanges relative to advancing issues. A good portion of this turbulence can…
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