Monday Morning Minute 073018
THE WEEK AHEAD
Last Friday’s strong 4.1% second quarter GDP print figures to be on the minds of Federal Open Market Committee (FOMC) members as they meet this week.
CONTRIBUTIONS TO GROWTH
The 4.1% GDP growth rate in the second quarter is the fifth highest growth rate of the expansion (see graph below).
Breaking down the significant Contributions to GDP Growth:
Consumer Spending rose a very strong 4.0% during the quarter and contributed 2.7% of the total rate. Spending on services contributed 1.5% while spending on goods (durables plus nondurables) contributed 0.6%.
While the jury is still out on the ultimate fate of U.S. trade policy, Net Exports was the next biggest contributor, adding 1.1% to growth. For comparison, last quarter this figure was only 0.4%. Imports subtracted 0.1% from growth during the second quarter compared to 0.5% during Q1.
Investment contributed just under 1% to overall growth. We would expect to see continued strength in this number as the effects of the tax cuts are realized.
Diversified Core (Based on 10-15 Year Capital Market Assumptions)
- Overweight Foreign Developed equities and Underweight Emerging Markets
- Overweight Domestic LG Cap Value and Underweight Growth
- Neutral Duration and Credit vs. Long Term Treasuries
Tactical Satellite (Based on 3-6 Month Outlook)
- Overweight Stocks vs. Bonds
Kevin Caron, CFA, Senior Portfolio Manager
Chad Morganlander, Senior Portfolio Manager
Matthew Battipaglia, Portfolio Manager
Suzanne Ashley, 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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