Monday Morning Minute 121817
THE WEEK AHEAD
A busy week of negotiations and analysis of tax policy this week, ahead of the Christmas holiday.
Congress will not be avoiding the Christmas rush this year, and a vote on a compromise bill is expected this week. A cut in the corporate tax to 21 percent from 35 percent is significant, and improves the after-tax earnings outlook. A reduced top individual income-tax rate, to 37 percent from 39.6 percent, should bolster private demand and savings. Progress on the tax front is important given the nearly $5 trillion increase in U.S. market value this year.
Meanwhile, monetary policy continued to move toward less accommodation last week. The Federal Reserve raised rates by 0.25% in a widely anticipated move, and Janet Yellen signaled continued progress for the economy. Very little new news came out of the Chair’s last press conference or the FOMC outlook. What is clear to us, is that 2018 is starting with a different policy backdrop than recent years. The combination of a deficit-financed fiscal push and reduced monetary accommodation is a unique policy cocktail, especially this late in the cycle.
Apart from policy shifts, the various signals we monitor continue to point to growth and healthy investor appetite for risk. As you can see below, the WCA Fundamental Conditions Barometer (below) remains above 50. Our forecast path centers around a 65 reading for the next three months, supporting a more bullish portfolio mix. Accordingly, we remain overweight stocks and underweight bonds in the CONQUEST tactical asset allocation portfolios.
ECONOMIC DATA THIS WEEK
|Monday, Dec 18:||Housing Market Index||Dec||70||70|
|Tuesday, Dec 19:||Housing Starts||Nov||1.25M||1.29M|
|Wednesday, Dec 20:||Existing Home Sales M/M||Nov||0.7%||2.0%|
|Thursday, Dec 21:||Weekly Jobless Claims||12/16||—||225K|
|Real GDP Q/Q||3Q17||3.3%||3.3%|
|Philadelphia Fed Business Outlook Survey||Dec||20.8||22.7|
|Friday, Dec 22:||Consumer Sentiment||Dec||—||96.8|
|Durable Goods Orders M/M||Nov||0.5%||-1.2%|
|Durable Goods Ex-Transportation M/M||Nov||0.5%||0.9%|
|Core Capital Goods M/M||Nov||0.5%||0.3%|
|Personal Income M/M||Nov||0.4%||0.4%|
|Consumer Spending M/M||Nov||0.5%||0.3%|
|New Home Sales||Nov||650K||685K|
ASSET ALLOCATION PORTFOLIO POSTURE
Based on shorter-term expectations, the “tactical” allocation within portfolios is overweight stocks versus 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.
The information contained herein has been prepared from sources believed to be reliable but is not guaranteed by us and is not a complete summary or statement of all available data, nor is it considered an offer to buy or sell any securities referred to herein. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. There is no guarantee that the figures or opinions forecasted in this report will be realized or achieved. Employees of Stifel, Nicolaus & Company, Incorporated or its affiliates may, at times, release written or oral commentary, technical analysis, or trading strategies that differ from the opinions expressed within. Past performance is no guarantee of future results. Indices are unmanaged, and you cannot invest directly in an index.
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