Monday Morning Minute 103017
THE WEEK AHEAD
A busy week ahead including a Federal Open Market Committee (FOMC) meeting, announcement on a selection for next Federal Reserve (Fed) Chair, possible release of some details for the tax plan, and a look at the September employment situation.
President Trump is said to be leaning toward naming current Fed governor Jay Powell as the next Fed chair. The President has previously indicated he will make his decision before he leaves on his next foreign trip next week. Friday’s employment report is expected to show the economy added 308,000 jobs in October and the unemployment rate unchanged at 4.2%.
With Janet Yellen’s term as Fed Chair possibly ending early next year we felt it prudent to compare the state of the economy when she began her term to now. During her tenure, the stock market is up 50%; the unemployment rate was reduced by a third; wage growth accelerated; the output gap closed; and core inflation remained stable. Whoever ends up leading the Federal Reserve next will be assuming the reigns of monetary policy from a healthier starting point than when Janet Yellen was first confirmed.
Not only will the incoming Fed Chair be dealing with a different economy, but fiscal policy could also be significantly different. On this front, we expect to see the details of the President’s tax plan get fleshed out relatively soon. Negotiations will begin in earnest as this information becomes available. The combination of shifting fiscal and monetary policy has the potential to significantly shape market expectations and behavior in the year ahead.
The most important data this week will be the September employment report. We expect to see solid employment gains in the neighborhood of 250-300k net new jobs, and solid wage growth. The combination of improving hourly earnings and low inflation (graph below) is helping to boost household purchasing power and helping to sustain domestic demand in the United States. In turn, this growth is helping to fuel sentiment, earnings, and growth in aggregate wealth.
ECONOMIC DATA THIS WEEK
|Monday, Oct 30:||Personal Income||Sep||0.4%||0.2%|
|Tuesday, Oct 31:||FOMC Meeting Begins|
|Employment Cost Index||3Q2017||0.7%||0.5%|
|S&P CoreLogic CS 20-City M/M SA||Aug||—||0.35%|
|S&P CoreLogic CS 20-City Y/Y NSA||Aug||—||5.81%|
|S&P CoreLogic CS US HPI Y/Y NSA||Aug||—||5.94%|
|Wednesday, Nov 1:||FOMC Meeting Announcement|
|Domestic Vehicle Sales||Oct||—||14.33M|
|Total Vehicle Sales||Oct||17.30M||18.47M|
|ADP Employment Report||Oct||185K||135K|
|PMI Manufacturing Index||Oct||—||54.5|
|Construction Spending M/M||Sep||-0.5%||0.5%|
|ISM Manufacturing Index||Oct||59.0||60.8|
|Thursday, Nov 2:||Weekly Jobless Claims||Oct 28||—||233K|
|Unit Labor Costs||3Q2017||0.4%||0.2%|
|Friday, Nov 3:||Change in Nonfarm Payrolls||Oct||308K||-33K|
|Average Hourly Earnings M/M||Oct||0.2%||0.5%|
|Average Hourly Earnings Y/Y||Oct||—||2.9%|
|Average Weekly Hours All Employees||Oct||34.4||34.4|
|Labor Force Participation Rate||Oct||—||63.1%|
|International Trade Balance||Sep||-$43.8B||-$42.4B|
|ISM Non-Manufacturing Index||Oct||58.1||59.8|
ASSET ALLOCATION PORTFOLIO POSTURE
Based on shorter-term expectations, the “tactical” allocation within portfolios is overweight stocks versus bonds.
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Kevin Caron, CFA, Senior Portfolio Manager
Chad Morganlander, Senior Portfolio Manager
Matthew Battipaglia, Portfolio Manager
Suzanne Ashley, Analyst
(973) 549-4052 www.washingtoncrossingadvisors.com
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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