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THE WEEK AHEAD

Happy Holidays from all of us at Washington Crossing Advisors and Happy New Year!

MACROECONOMIC INSIGHT

We first learned about the President’s tax plan a year ago. At that time, we had few details on which to base a forecast. Still, we anticipated that the plan could give a boost to the economy, especially through encouraging investment. The bipartisan Tax Foundation also looked at the early proposal and initially added roughly 0.75% to their baseline growth expectation. We raised our own long-run forecast by 0.25%.

With the bill fully fleshed out, the Tax Foundation has come in with an updated analysis of the plan’s economic impact. In their updated view, the changes should add approximately 0.3% to growth versus their expected growth rate assuming no change in tax law. Their report titled Preliminary Details and Analysis of the Tax Cuts and Jobs Act highlights three important impacts on the economy. First, they see GDP getting a $5 trillion boost over the next ten years from the plan. Second, they project a 1.5% jump in wages, which could attract more workers into the labor force further encouraging growth (the Tax Foundation estimates 339,000 additional full-time jobs as a result of this bill). Third, they project that the stock of invested capital will be 4.8% larger and provide a needed boost to investment.

With greater growth in investment and labor contributing to higher growth, we believe the longer-run expected return for equities is also helped. However, we are mindful that the anticipated bump in growth and increase in expected after tax earnings are to a large extent already discounted into prices. By our math, a 0.25% increase in long-term growth lifts equities roughly 30%[1]. This very rough estimate has largely been fulfilled over the past year as the S&P is up roughly 28% from just after the election.

Ultimately, we see that the fulfillment of the President’s tax pledge moves the government’s fiscal stance toward a more expansionary footing, and raises the economy’s longer-term growth rate.

For an economy that had been mired in slow growth, the addition of capital friendly tax cuts to an improving growth picture is a nice way to wrap up 2017.

Best wishes for a happy, healthy, and prosperous 2018!

ECONOMIC DATA THIS WEEK

Date Report Period Survey Prior
Monday, Dec 25: Christmas Day: Markets Closed
Tuesday, Dec 26: No Economic Data
Wednesday, Dec 27: S&P Corelogic Case-Shiller HPI SA M/M Oct 0.5%
S&P Corelogic Case-Shiller HPI NSA M/M Oct 0.4%
S&P Corelogic Case-Shiller HPI NSA Y/Y Oct 6.2%
Consumer Confidence Dec 129.5
Pending Home Sales Index M/M Nov 3.5%
Thursday, Dec 28: Weekly Jobless Claims 12/23
International Trade Balance Nov -$68.3B
International Trade Exports % Change Nov -1.0%
International Trade Imports % Change Nov 1.5%
Friday, Dec 29: Chicago PMI Dec 63.9
Source: Bloomberg

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

(973) 549-4052

www.washingtoncrossingadvisors.com
www.stifel.com

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Disclosures

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.

Asset allocation and diversification do not ensure a profit and may not protect against loss. There are special considerations associated with international investing, including the risk of currency fluctuations and political and economic events. Investing in emerging markets may involve greater risk and volatility than investing in more developed countries. Due to their narrow focus, sector-based investments typically exhibit greater volatility. Small company stocks are typically more volatile and carry additional risks, since smaller companies generally are not as well established as larger companies. Property values can fall due to environmental, economic, or other reasons, and changes in interest rates can negatively impact the performance of real estate companies. When investing in bonds, it is important to note that as interest rates rise, bond prices will fall. High-yield bonds have greater credit risk than higher-quality bonds. The risk of loss in trading commodities and futures can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. The high degree of leverage that is often obtainable in commodity trading can work against you as well as for you. The use of leverage can lead to large losses as well as gains.

All investments involve risk, including loss of principal, and there is no guarantee that investment objectives will be met. It is important to review your investment objectives, risk tolerance and liquidity needs before choosing an investment style or manager. Equity investments are subject generally to market, market sector, market liquidity, issuer, and investment style risks, among other factors to varying degrees. Fixed Income investments are subject to market, market liquidity, issuer, investment style, interest rate, credit quality, and call risks, among other factors to varying degrees.

This commentary often expresses opinions about the direction of market, investment sector and other trends. The opinions should not be considered predictions of future results. The information contained in this report is based on sources believed to be reliable, but is not guaranteed and not necessarily complete.

The securities discussed in this material were selected due to recent changes in the strategies. This selection criteria is not based on any measurement of performance of the underlying security.

Washington Crossing Advisors LLC is a wholly owned subsidiary and affiliated SEC Registered Investment Adviser of Stifel Financial Corp (NYSE: SF).