Quiet week on the data front this week, but the Federal Reserve (Fed) releases minutes from their latest meeting.


Last week, the February Philadelphia Business Outlook Survey (BOS) reached 43.3, a level not seen since 1973. The three month moving average rose to 24.9 which was last achieved in 2004 shortly after Congress signed the  Jobs and Growth Tax Relief Reconciliation Act of 2003. Both is 1973 and 2004, the economy posted the best growth of the respective decades.

Why is the report important? For one, it focuses on a very important component of the economy — planned business investment. The BOS also ties in well with the Institute for Supply Management’s (ISM) National Manufacturing Index, a good proxy for GDP growth (chart A). While not perfectly correlated, the Philly Fed’s BOS tends to provide some insight into the higher-profile ISM report (due out March 1).

Chart A

We also updated our WCA Fundamental Conditions Barometer, and our forecast of same through April (chart B). Here we also see that most fundamental market and economic conditions point toward growth. After bottoming out a year ago, a pickup in global growth helped drive improving conditions throughout 2016. We expect the pace of growth acceleration to cool somewhat in the months ahead, however.

Chart B

Portfolios remain tactically overweight large-cap domestic stocks versus bonds at this time.



Date Report Period Survey Prior
Monday, Feb 20: President’s Day: Markets Closed
Tuesday, Feb 21: PMI Manufacturing Index Flash Feb 55.1
Wednesday, Feb 22: FOMC Minutes
Existing Home Sales M/M Jan -2.8%
Existing Home Sales Y/Y Jan 0.7%
Thursday, Feb 23: Weekly Jobless Claims 2/18 239 K
Friday, Feb 24: New Home Sales Jan 536 K
Consumer Sentiment Feb 95.7
Source: Bloomberg



Based on shorter-term expectations, the “tactical” allocation within portfolios is underweight bonds / overweight stocks.


Kevin Caron, CFA, Portfolio Manager
Chad Morganlander, Portfolio Manager
Matthew Battipaglia, Analyst

Suzanne Ashley, Junior Analyst

(973) 549-4052




WCA Fundamental Conditions Barometer Description: We regularly assess changes in fundamental conditions to help guide near-term asset allocation decisions. The analysis incorporates approximately 30 forward-looking indicators in categories ranging from Credit and Capital Markets to U.S. Economic Conditions and Foreign Conditions. From each category of data, we create three diffusion-style sub-indices that measure the trends in the underlying data. Sustained improvement that is spread across a wide variety of observations will produce index readings above 50 (potentially favoring stocks), while readings below 50 would indicate potential deterioration (potentially favoring bonds). The WCA Fundamental Conditions Index combines the three underlying categories into a single summary measure. This measure can be thought of as a “barometer” for changes in fundamental conditions.

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