Insight & Commentaries
This report discusses current recommended allocations in light of evolving fundamental conditions. We lay out expectations for the economy and various themes that we think will exist over our forecast horizon. The report also includes an update on the WCA Fundamental Conditions Index along with recommended portfolio allocations for different investor types.
Months of slippage in fundamental data have left investors concerned about the outlook. Although Europe’s troubles grabbed the headlines, the process of household balance sheet repair continued in 2011 and remains the single most important thematic as we head into the new year.
Last week’s addition of central bank liquidity has eased financial uncertainty, but this liquidity is temporary in nature. We continue to see better fundamental data trends in the United States evidenced by recent employment and other survey measures of activity. Although valuations seem to favor equities, uncertainty about fundamentals needs to show continued improvement.
Recent crisis in Europe puts the European Union to the test. This commentary explores the issues of union in the context of the crisis. Also, we notice the U.S. economy continues to fair reasonably well. Portfolio posture remains cautious as we await a measurable sign of improvement in fundamental conditions.
Despite the confidence shock from August and September’s market drama, the U.S. economy performed reasonably well, judging by recent data. Risk has been pared back beginning last spring, and model portfolios are tilted more toward bonds within strategic ranges. We are watching for signs of stabilization in fundamental conditions before returning portfolios to a more fully invested “neutral” posture with greater equity exposure.
Healthcare and Consumer Staples offer investors opportunities. A conversation with portfolio manager and market strategist, Kevin Caron.
The choice now facing policymakers is between gradual or bold action in light of the weaker economy and more fragile markets. Restoring faith in Europe’s financial system and avoiding deflation must be job number one.
While a recession would mean lower stock prices, a longer view reminds us that tough times also create opportunity. Stock holdings should be viewed as part of an overall mix of personal assets. A balanced approach allows for smart risk-taking.
Major U.S. stock market averages have corrected by greater than 10% from highs reached in May. Intensifying concern about potential default by some European countries, an unsettling debate over the funding of the U.S. deficit, and generally disappointing economic data has provided little reason for investors to bid up stock prices. This weeks commentary discusses the week that was and discuss how investors should respond to recent volatility.
Beginning in May, portfolios were allocated closer to the middle of prescribed ranges for stock and bond exposure as data showed signs of slowing. Bond allocations were modestly raised, defensive sectors were added, and domestic large-cap value was re-introduced into portfolios. Greek and European debt issues have been the focus of investor attention in recent weeks. Although we have no direct equity exposure to Greece, Ireland, Spain, or Portugal, we discuss the potential for Europe to find a “fix” to a difficult set of issues.
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