Monday Morning Minute 032717
THE WEEK AHEAD
Markets digest last week’s failed vote on the American Health Care Act and begin to look forward to the upcoming earnings season.
Congress abandoned a much awaited vote on The American Health Care Act on Friday. Uncertainty over the passage of the bill pressured equities, buoyed bonds, and weighed on the dollar last week.
Markets recognize that prospects for potent tax cuts later this year was at least partly dependent on passage of the health care bill. Without funds resulting from the bill’s passage, the House of Representatives may struggle to pass a revenue neutral budget to the Senate. Without neutrality, a 60-vote point of order under “pay as you go” rules would lessen the size of any tax cut bill.
This is clearly a short-term blow to the president’s fiscal agenda. The struggle with the American Health Care Act reminds us that health care remains a most difficult political issue. Longer-term, there are many issues that will need to be addressed. For now, the agenda will move forward toward other items including regulatory and corporate tax reform. These issues appear to garner broader support in congress and with the public.
In the weeks ahead, markets will shift their focus to earnings reports and the expectations here are good. FactSet Research reports that analysts now estimate average 9% earnings growth for S&P 500 companies. This would be the highest rate of growth since 2011.
Markets will weigh the changing fiscal outlook against a background of improving earnings in the days and weeks ahead.
ECONOMIC RELEASES THIS WEEK
|Monday, Mar 27:||Dallas Fed Manf. Activity||Mar||22.0||24.5|
|Tuesday, Mar 28:||Advance Goods Trade Balance||Feb||-$66.5B||-$69.2B|
|S&P Corelogic Case-Shiller HPI SA M/M||Jan||0.70%||0.93%|
|S&P Corelogic Case-Shiller HPI NSA Y/Y||Jan||5.65%||5.58%|
|Wednesday, Mar 29:||Pending Home Sales Index M/M||Feb||2.2%||-2.8%|
|Pending Home Sales Index Y/Y||Feb||—||2.7%|
|Thursday, Mar 30:||Weekly Jobless Claims||Mar 25||245K||258K|
|GDP Annualized Q/Q||4Q2016||2.0%||1.9%|
|Friday, Mar 31:||Personal Income||Feb||0.4%||0.4%|
ASSET ALLOCATION PORTFOLIO POSTURE
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
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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