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Commentary

16 Oct 2024

The Great Normalization: Post-Pandemic Economic Trends in the U.S.

As the dust settles from the pandemic's economic upheaval, we're witnessing what we call "The Great Normalization" - a return to pre-pandemic economic norms, albeit with significant structural changes. This shift presents both challenges and opportunities for investors and businesses alike. Key indicators such as GDP growth, job creation, and inflation are trending towards historical averages, signaling a more measured economic environment. However, this normalization isn't uniform across all sectors and regions, creating a complex tapestry of risks and potential rewards. Join us as we unpack the intricacies of The Great Normalization and its implications for your investment strategy.

16 Sep 2024

Getting Back to Normal: The Yield Curve

The yield curve inversion is nearing its end with some short-term yields falling faster than long-term yields, though it's still far from historical norms. Our base-case scenario suggests short-term yields will continue to fall faster than long-term yields as the U.S. Federal Reserve (Fed) implements expected interest rate cuts likely over a one- to two-year period. Slowing jobs growth and softer inflation are giving the Fed more flexibility to reduce short-term interest rates with markets pricing in at least 0.75% in rate cuts before the end of 2024. While money market funds currently offer attractive yields, their income will decrease rapidly once the Fed starts lowering rates. In contrast, intermediate fixed income investments offer more income stability and potential capital appreciation.

12 Aug 2024

What to Make of the Recent Volatility & the Potential for Fed Rate Cuts

Recently, the Cash Indicator (CI) spiked as volatility rose but didn't signal a cash raise, then quickly settled. Though a jump in volatility like this is discomforting, it is to be expected given how complacent the financial markets have been. In this article, we discuss volatility, the economy and impending rate cuts.

22 Jul 2024

Transformative Growth: Perspectives Beyond the Election, the Fed & the Yield Curve

Uncertainty around the November election and U.S. Federal Reserve policy shift may cause near-term volatility and potential buying opportunities. Additionally, the economy, inflation, and jobs growth are getting back to normal. Beyond near-term uncertainty lies a new era of growth and prosperity driven by a strong U.S. private sector. Managing risk with a focus on quality equity and fixed income will likely lead to the best near-term results.

18 Jun 2024

During Uncertain Times, Lean Into Quality

Global central banks are countering inflation from COVID-19 stimulus measures, creating unusual economic times. Uncertainty is heightened by this year's worldwide elections. The U.S. private sector is strong but faces risks. Emphasizing quality equities and intermediate-duration high-quality fixed income investments can both offer protection and generate attractive returns.

13 May 2024

Growth May Be Much Stronger Than It Appears

First quarter economic growth was stronger than the GDP report suggested. In addition, economic activity has increased globally. The percentage of the labor force not employed has reached an all-time low. Massive investments in Research & Development (R&D) will drive innovation and create benefits that will last for years to come.

08 Apr 2024

Though Near-Term Risks Persist, the U.S. Is Entering a New Golden Age

The equity market has evolved from one of the narrowest in history to now rewarding a broader set of companies, which we view as a strong positive for investors. Economic growth has slowed from last year’s above average pace to now closer to historical norms, which is also a healthy sign. The U.S. Federal Reserve (Fed) seems to be following through on its recent pivot to acknowledging declining inflationary trends that will likely lead to interest rate cuts this year. Investors can prepare for these rate cuts by diversifying across intermediate duration fixed income and dividend paying equities to maintain income levels and benefit from potential capital appreciation. We expect increased market volatility will create opportunities to acquire high quality assets. Our long-term outlook for the U.S. is as optimistic as ever based on healthy business and overall household fundamentals. Private sector investments in industrial capacity as well as research and development should lead to increasing levels of innovation and productivity growth. Household income growth is solid while debt-to-income levels are just now getting back to normal. Additionally, households stand to benefit from locking in low mortgage rates for decades to come. Though near-term economic risks persist, the U.S. is set to embark on a new era of economic growth for the next decade or more.

18 Mar 2024

Changing Market Dynamics Provide Opportunities as Economic Growth Persists

Our work suggests that continued strength in the private sector will drive economic growth in the months to come. We expect to see broader equity market participation this year as earnings growth expands beyond the narrow group of technology-oriented stocks that led last year’s gains. Tactical shifts in fixed income have focused on securing current high levels of income by emphasizing defined maturity intermediate duration holdings. Investors over-allocated to money markets and T-Bills may witness a swift decline in interest income with falling interest rates.

21 Feb 2024

The Death of the U.S. Consumer Has Been Greatly Exaggerated

Headlines abound suggesting a weakening from the U.S. consumer. Articles detailing persistent inflation, growing credit card usage, and an increasing number of past-due loan payments make things sound shaky. However, we think that historical context is necessary. Comparing current income growth rates, consumer debt-to-income levels, and delinquency rates to history suggests that personal income has been growing faster than inflation while households in general are only getting back to normal debt-to-income levels after a period of massive government stimulus. In short, despite the dire headlines, the consumer is only getting back to normal.

17 Jan 2024

Defense Wins Championships: Digging Into Valuations

The economy was more resilient over the course of 2023 than we had expected given the aggressive policy tightening from the Fed. Excess pandemic-era stimulus combined with additional fiscal stimulus kept demand elevated even as supply chain disruptions eased. As we stated in the past, the Fed has notoriously not been known for its nuance and recent history has been no exception. While high money market rates may seem appealing, they carry their own risks. Diversified intermediate- and longer-duration high-quality fixed income investments offer compelling income and potential for capital appreciation. High-quality equities with dividend income potential are also attractive. With a full slate of anticipated Fed policy intervention and no shortage of headlines as election rhetoric heats up, our nimble strategic and tactical approach may make sense for those more market sensitive investors. Read and watch our recent commentary below.

18 Dec 2023

Safe Harbors in a Time of Growing Uncertainty

With this year’s equity market rally so narrowly focused on a few technology related companies while economic and market uncertainties persist, many investors are struggling with the placement of their investment dollars. Some investors are parking excessive amounts of money in money market funds to capture attractive current yields. As the U.S. Federal Reserve (Fed) began increasing short-term interest rates, assets in retail money market funds sored. With short-term interest rates much more attractive than in the recent past, we think that money market funds and short-term Treasuries deserve an allocation in investors’ portfolios. However, such a large move into money market funds over a short period of time suggests that investors may be over allocating to money market funds and T-Bills while perhaps not considering the implications and potential opportunity costs associated with holding such an overweight to them.

14 Nov 2023

Increasing Current Income as Well as Long-Term Return Potential

This year’s narrow equity market rally combined with declining bond prices have created a wealth of opportunities for patient investors. Our cautious economic and financial market views have our Strategies biased towards defensive, high-quality equity and fixed income sectors that are also relatively inexpensive. We have been finding more and more opportunities to increase the current yield and potential total return for our investors.

16 Oct 2023

Identifying Value Through Flexibility

We see attractive valuations across the global financial markets. The narrowness of this year’s equity market rally has left many capitalization weighted domestic indices quite expensive. As a result, the areas that have largely been ignored or even punished this year look both inexpensive and poised to outperform. Our Strategies are focused on those areas of the financial markets that present attractive relative valuations while potentially offering a level of downside protection. We expect these holdings to perform well in the months and years to come. As the current tightening cycle ends and higher rates persist, we should start to see investors take advantage of these attractive valuations. It is important to consider today’s economic and geopolitical uncertainties where the flexibility to move across asset classes and investments can prove to be valuable.

18 Sep 2023

Value, Value Everywhere – Disparate Markets Magnify Opportunities

There has been a lot of talk about this year’s narrow equity market rally. What is less discussed is how the narrow rally has left many other areas of the financial markets extremely attractive. We are finding interesting investment opportunities almost everywhere we look across the equity landscape. These kinds of performance chasing and speculative environments occur occasionally, and while the timing of these runs may differ, the result has always been the same. History and experience teach us that paying up to invest in areas that have already had a strong run, especially those that are trading at speculative levels, can be harmful to long-term financial goals.

15 Aug 2023

Finding Opportunities Amid the Distortions

This year’s gains have been led by a very few primarily large cap growth stocks whose stock prices have become very expensive relative to sales and earnings. History shows that narrow market leadership and especially stretched valuations will not hold. Those who expect this narrow market leadership to continue are betting against history. Following a strategy that puts risk first to find attractive investment opportunities can help ease investors’ nerves, especially when headlines look bleak and market volatility increases.

17 Jul 2023

Distorted Equity Markets Create Opportunities for Potential Gains and Risk Management

The current market is quite reminiscent of late 2020 when the top-heavy large cap indices were pulled higher by just a handful of constituents only to then have the market find its way back to equilibrium over the coming months. Due to the rally in a few large company stocks, the S&P 500 Index is trading at almost 20x expected earnings, while the equally weighted version of the same Index is trading at less than 17x the expected 12-months earnings. In fact, relative to the valuation of the equally weighted Index, the valuation premium of the capitalization weighted Index is near the upper end of its historical range. In summary, by investing in the same companies on an equally weighted basis rather than a capitalization weighted basis, investors can go from paying a premium on expected earnings to a discount. That is why, especially in times like this, we think that having a disciplined investment management process can make all the difference.

12 Jun 2023

Once Again, FOMO Creates an Abundance of Opportunity

While many market participants are enthused by the shiny new objects of the day, amazing investment opportunities are often being ignored, at least for a time. Eventually, markets once again normalize, and once ignored opportunities take the lead. Currently, with a very few large cap U.S. stocks driving equity market returns, we are seeing both the FOMO trades and an abundance of opportunities found outside of the spotlight.

15 May 2023

Balancing Participating and Protecting Late in the Business Cycle

Our work suggests that we should be prepared for more economic and market turmoil in the near-term. Some of our longer lead-time indicators that typically lead the business cycle by about a year began to flash cautionary signals in 2022. More recently, some of our near-term leading indicators have begun signaling caution as well. Meanwhile, our longer-term outlook for the U.S. economy and markets has become even brighter. History teaches us that attempting to get the timing of these economic and market shifts just right can be damaging to long-term investment results. Instead of trying to time the markets, we have prepared our Strategies to be more resilient to potential shocks. We are utilizing a variety of investment approaches including defensive equity positions, options strategies, master limited partnerships, and Treasury bonds for potentially both yield and capital appreciation. These investments not only offer the potential for income but can also function as a ballast against economic declines. News cycles, negative headlines and volatility can have a detrimental effect on any investor’s ability to stay the course. Having the ability to manage risk in real time and reduce volatility can make all the difference.

17 Apr 2023

Finding More Reasons for Long-Term Optimism

While the current landscape is challenging, we find many reasons to be optimistic about what the next business cycle has in store. In aggregate, U.S. households are prepared to weather the looming economic challenges as they are in great shape relative to history. Looking further out, the private sector is set to provide an excellent foundation upon which the U.S. will launch its next business cycle.

13 Mar 2023

Don’t Let Near-Term Risks Obscure Long-Term Opportunities

Beyond the near term market volatility, we see at least 3 very positive attributes that will help drive the U.S. economy and markets forward. While we do expect a recession in 2023, we also look forward to the beginning of the next business cycle which should be fundamentally stronger than anything we have seen in recent decades.

14 Feb 2023

Recession Fears: Can The Fed Stick The Landing?

Global equity markets and related risk assets have experienced a strong rally in recent months. Still, our base-case scenario includes a recession and continued market volatility over the near-term. We think that U.S. Federal Reserve (Fed) policy represents the most acute risk to the global economy and markets. Since 1954, the Fed has achieved four soft landings (1965, 1971, 1984, and 1995) out of 14 interest rate hiking cycles. If the Fed sticks the landing this time, it will mark the fifth out of fifteen. Not great odds, but also definitely possible at this time.

20 Jan 2023

The U.S. Economy: Setting The Stage For a Strong Business Cycle

As the U.S. and global economies now deal with the aftereffects of massive fiscal and monetary overstimulation, the conversation shifts to the depth and length of the consequential recession. However, our focus remains on how we incorporate that information into investment strategies. As such, we have developed a few broad themes for 2023, including surprising pace at which we expect headline inflation (CPI) to fall. Looking beyond the near-term outlook and potential for near-term economic malaise, we expect the U.S. economy to begin a new long and high-quality business cycle."

19 Dec 2022

Steps to Managing Risks and Increasing Defenses

Similar to the one-year lag in inflation taking hold as a result of too much stimulus, we expect the U.S. Federal Reserve (the Fed) to continue their tightening policy until well after the point that additional tightening is necessary. Under this scenario, we have adjusted our Strategies to potentially provide some more protection from the fallout of an overly tight monetary policy.

14 Nov 2022

Investing For The Road Ahead: How To Not Miss The Turn

As investment managers, it is important for us to define a worldview that can accurately forecast or, at the very least, set reasonable expectations for future outcomes. The markets and the election cycle have investors hyper-focused on lagging inflation data as the Fed continues to aggressively tighten through interest rate hikes and a steady balance sheet reduction. However, we cannot stress enough the importance of forward-looking inflation expectations.

10 Nov 2022

Why Equity Investors Should not Wait for the Economic News to Get Better

The stock market is not the economy. This is an extremely important concept for investors to keep in mind amidst the constant media drum beat of inflation, rising interest rates, and recession. What gets lost in this cacophony of information overload is the fact that the stock market is a leading economic indicator that is attempting to reflect expected future economic conditions. By following a defined process for navigating a risky world, we think investors can feel more confident that they can ride through the turbulence to arrive at their desired financial destination. Recessions and bear markets are part of economic and market cycles, and they do not last forever. Investors can use these turbulent times to find new opportunities so long as they follow a disciplined process.

21 Oct 2022

The Key to a Housing Market Recovery

The housing market is in turmoil and investors are rightly concerned. Our analysis of the housing market points to one clear issue, a buyer’s strike. It is not a lack of demand for new homes, nor is it a matter of household finances. The real culprit seems to be the prices for homes. After experiencing a spike in home prices since mid-2021, we expect to see a correction in these prices sufficient to clear the market.

18 Oct 2022

Navigating Near-Term Risk as the Long-Term Outlook Becomes Brighter

With equity and bond markets down and recessionary risks building, many are wondering where we go from here. We look at incoming data through the prism of our Three Layers of Risk Management. These layers include our strategic three- to five-year outlook, our tactical six- to eighteen-month view, and the Cash Indicator. Today, we are seeing compelling opportunities both strategically and tactically to protect assets and potentially benefit from this challenging investment environment.

21 Sep 2022

Increasing Defenses in Light of Increasing Economic Risks

While the U.S. economy seems to have successfully avoided a recession so far, the risks to future economic growth are increasing. Leading Economic Indicators have softened while the Fed continues to tighten policy, possibly unnecessarily. Looking at these factors in combination, we think it is prudent for investors to utilize strategies that incorporate tactical risk management and can position defensively as appropriate.

22 Aug 2022

With Mixed Economic Signals, What Should the Fed Do?

Recent reports are confirming that the pace of U.S. economic growth has clearly slowed. In addition, both retail sales and industrial production continue to increase even with slowing economic growth. Our base case scenario is that the slow pace of economic growth, along with corporate revenue and earnings growth, should continue over the near-term, provided the U.S. Federal Reserve does not act too aggressively. However, orchestrating a soft landing is going to take some finesse. We will continue to monitor our forward-looking indicators and adjust accordingly as we manage risk in real time.

11 Jul 2022

The U.S. Economy Is Tougher Than You Think.

Our work suggests that the recession currently priced into the equity market has yet to show up. In fact, there are some positive signs that this economy will not go down without a fight.

13 Jun 2022

Looking Ahead: U.S. Households Lead the Way.

Though we are experiencing many global economic headwinds and challenges, our outlook for the U.S. remains optimistic. Households are a key driver for the U.S. economy, and they are in great shape overall. For example, real (inflation-adjusted) disposable income continues to grow. After spiking with the COVID related government stimulus, the growth in real disposable income has fallen to just below the average level since 1980 on a rolling 36-month basis, and remains above the lowest levels seen in the early 1980s, early 1990s, and after the Global Financial Crisis. Read our recent commentary for more details.

18 May 2022

Is This a Market Correction or a Crisis?

After years of strong returns, especially relative to long-term averages, the equity market seems to be taking steps back as it normally does after a period of above average performance. Volatility is the price that investors pay for strong long-term results. Our work suggests that the financial markets are not pricing in a U.S. recession at this time. We think the markets are going through a valuation reassessment based on persistent inflation and higher interest rates To learn more, read our outlook below.

12 Apr 2022

Stagflation or Recession? Unlikely in the U.S.

When creating forecasts and managing risk in real time, we can’t stress enough the value of having a well-defined and dynamic process. Based on our process, we are optimistic about the U.S. economy during 2022 for a number of reason and suggest using equity market volatility as an opportunity to add to equities. To learn more, read our first quarter outlook below.

14 Mar 2022

How the U.S. Economy is Sheltered From Global Risks.

While geopolitical risks and global unrest can roil markets, a historical perspective and a robust investment process can help guide investors through volatility. Read our full article below to learn more about our outlook and positioning.

28 Feb 2022

Navigating Today’s Market Risks.

Stock market volatility can be stressful, even frightening. Investors tend to feel the stress of market declines more significantly than the euphoria of gains

18 Jan 2022

Higher Output, Earnings, Interest Rates, and Higher Stock Market Prices.

Overall, we are optimistic about the U.S. economy going into 2022. While we have no way of accurately forecasting the direction the pandemic will take, we have seen that the economic impact of each successive wave has been smaller than the one before.

14 Dec 2021

Strong Economic Conditions Leading to Tighter Monetary Policy.

We think the recent strength in the economy and labor market, coupled with persistent inflation, will push the U.S. Federal Reserve (Fed) to end its bond purchases and begin to hike short-term interest rates sooner than previously expected.

18 Nov 2021

The Fed’s Balancing Act: Jobs Growth, Inflation and Tapering.

As we visit with investors, we are frequently asked about our outlook for the economy and how it might affect the markets in the near-term.

12 Nov 2021

Overstimulating The Economy: The Slow Pace of Fed Tapering.

On November 3rd, the U.S. Federal Reserve (Fed) announced that it will reduce, or taper, it’s $120 billion in monthly purchases of U.S. Treasuries and agency mortgage-backed securities by $15 billion per month.

18 Oct 2021

Don’t Let the Headlines Get You Down: Reasons for Optimism.

Supply chain disruptions have dominated the headlines over the past few quarters and created a bit of headwind to global growth.

13 Sep 2021

Where Do We Go From Here?.

At this stage in the economic recovery, those investors that stuck with their financial plan are likely feeling relatively content whereas those that are holding more cash than needed may be feeling nervous about entering the markets at their current levels.

17 Aug 2021

We May Have Seen Peak Economic Growth and Peak Inflation, But Both Will Remain Strong

Recent economic reports suggest that the blistering pace of growth is easing, and inflationary conditions are cooling.

12 Jul 2021

Balancing Economic Growth With Market Valuations.

Most of the economic indicators that we track, such as monetary conditions and business surveys, point to solid economic growth in the coming months and continuing into 2022.

14 Jun 2021

Market Valuation & Complacency: Managing Risks.

There are important distinctions between the real economy and the financial markets. We expect the course ahead to make those differences more obvious.

17 May 2021

Along the Road to Recovery.

Jobs, economic growth, and inflation have been the focus as the recovery progresses. Starting with the employment picture, there are a multitude of factors that influence employment reports and impact the change in the number of jobs.

12 Apr 2021

Building Economic Momentum – Navigating the Widening Recovery.

Our outlook for the U.S. economy has improved. We now expect real GDP growth over the course of 2021 to be close to 7%, which would be the fastest annual growth rate since 1984.

15 Mar 2021

More Economic and Market Upside to Come.

Our work suggests that U.S. economic prospects continue to brighten. Higher long-term interest rates currently reflect market expectations for faster economic growth and somewhat higher inflation.

19 Feb 2021

Three Reasons for Economic Growth and Higher Equity Prices.

There are three broad reasons why our outlook for U.S. economic growth and the equity market continues to brighten.

20 Jan 2021

How to Navigate the Largest Economic Stimulus in U.S. History.

Between the massive fiscal response and dramatic monetary policy actions, we think that the U.S. government’s response to the economic consequences of the COVID-19 pandemic will ultimately be judged as the largest economic stimulus in our history

News Articles

The Multifaceted Impact of Federal Reserve Easing Cycles on Financial Markets

Few entities wield as much influence on the economy as the U.S. Federal Reserve (Fed). When the Fed embarks on an easing cycle and lowers its target interest rate, the ripple effects are felt across various sectors of the economy. This piece explores the nuanced impacts of such a cycle with a particular focus on mortgages, consumer credit, and cash investments.

Oct 2024

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The Fed Cut Interest Rates, Now What?

With the Fed starting a new round of interest rate reductions, we look at what consumer, investors, and businesses might expect going forward.

Sep 2024

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Hands Off the Fed

"Hands off the FED" discusses how important the independence of the Federal Reserve Board is and why even the suggestion of politics and political influence can be detrimental to the largest economy in the world. We provide some history and examples of why these separations are necessary.

Sep 2024

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Why the Fed Is Bigger Than the President, No Matter Who Gets Elected

With the upcoming election, we have been traveling the country fielding questions about the markets and economy as well as which political party the markets prefer. Mountains of data and countless studies suggest that it doesn't actually matter all that much. So, what does matter? Check out our most recent article to find out.

Aug 2024

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Election Year Series: A Path to Federal Debt Sustainability

The U.S. faces significant fiscal challenges due to current debt and deficit levels, requiring bipartisan cooperation to address effectively. History shows that fiscal responsibility can be achieved across party lines, but solutions are typically long-term rather than immediate. To achieve fiscal sustainability, spending growth must be lower than revenue growth. Our work suggests that that the U.S. can achieve to pre-COVID debt-to-GDP levels in 5-10 years, depending on economic growth rates and spending discipline. Innovation, such as AI, could potentially accelerate economic growth, similar to the IT boom of the 1990s, aiding fiscal recovery.

Jul 2024

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Three Ways the Yield Curve May Normalize

Yield Curve Inversion: July marks two years since the longest yield curve inversion in US history, where short-term Treasury yields exceeded long-term yields, driven by higher short-term interest rates. Economic Conditions: Stimulus measures during COVID led to increased money supply and consumer spending flexibility. Despite recent inflation and slowing spending, the economy remains resilient. Fed's Stance: The Fed remains cautious, ready to ease if needed, amidst inflation above 2% and expectations of longer-term rates around 2.3%. The paths to normalization include: gradual inflation decline prompting Fed easing (Scenario A); higher long-term rates amid inflation pressure (Scenario B); or a deep recession leading to aggressive Fed rate cuts (Scenario C). Investment Strategy: Current strategy focuses on the 5-year duration "belly" of the yield curve for optimal yield and risk management, balancing current yield against potential future rate changes.

Jun 2024

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Inflation Again: Is This the 70s All Over?

In this piece we compare the 1970s to the current economic and market environments, comparing and contrasting across: monetary and fiscal policies; gold and currency valuations; oil and energy dependencies; inflation dynamics; and stock market dynamics. While lessons from the 1970s are valuable, today’s economic environment features fundamentally different monetary policies, energy dependencies, and global integration, requiring contemporary strategies for effective navigation and investment.

May 2024

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The Sweet Spot in Fixed Income

Fed Policy Impact: The U.S. Federal Reserve's policies will significantly influence both fixed income and equity markets in 2024, making it a crucial factor for investors to monitor in our view. Inflation Outlook: Despite current inflation rates surpassing the Fed's target, we expect inflation to subside as remaining COVID stimulus exits the economy, leading to inflation numbers closer to the long-term target of 2%. Inflationary Pressures: Declining monetary supply suggests a potential easing of inflationary pressures as COVID stimulus diminishes. Challenges for Bond Investors: Uncertainty surrounding the timing and extent of Fed rate adjustments creates a complex landscape for bond investors. Active management can help mitigate risks and add value. Active Fixed Income Management Strategies: We believe that diversification across yield curve and credit risk spectrum, alongside incorporating a balance of credit risk and Treasuries, are essential strategies for navigating policy transitions and uncertainties in the bond market during 2024.

Apr 2024

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Federal Reserve Policy Update: Following Through on the Powell Pivot

Markets are hanging on every word from the FED, looking for changes in tone and tenor and for signals of the next move. Tune in as we discuss where we believe the FED goes from here.

Apr 2024

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More Proof that the Private Sector is More Powerful than the Government

Results of elections and political agendas are important, but in America’s capitalist, free market economy, the private sector and the consumer are the dominant forces that drive economic growth. The energy sector is a prime example of private sector innovation in response to consumer demand driving growth. U.S. energy production has experienced a significant and unabated expansion since 2010 regardless of political party in power.

Mar 2024

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The Amazing Disappearing Inflation and Its Impact on Household Income

In aggregate, U.S. personal income growth has gotten stronger after adjusting for inflation. Incomes continue to rise, while the rate of inflation has been falling. This has very positive impacts of the state of the economy going forward.

Mar 2024

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Protecting Against a Lost Decade

Looking back at the S&P 500 Index in 2023, the return of the Index was dominated by a small number of mega cap stocks termed the magnificent seven. While these stocks accounted for a significant portion of the overall return, many investors will look at that experience and try to draw all sorts of conclusions. One might decide that investing alongside the S&P 500 Index makes the most sense in the hopes that similar performance will repeat. On the other hand, it’s possible that avoiding the magnificent seven entirely and simply owning the other 493 stocks in the Index will have the highest probability of success. What does history tell us and how can that potentially lead us to better outcomes?

Feb 2024

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The Powell Pivot

Previously, our biggest concern for the outlook of the economy had been that the U.S. Federal Reserve (Fed) would keep short-term interest rates too high for too long. With Chairman Powell’s recent press conference and the release of the Fed’s “dot plot” at the conclusion of the latest Fed meeting, the Fed appears to have shifted to a more dovish stance. Though uncertainties and risks remain, we think the Powell Pivot is good news for the economy and increases the likelihood of continued economic growth.

Dec 2023

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The Holidays Are A Gift: 2023 Update

The holidays are a time when family and friends tend to congregate at the family home. Your clients get to see those children, grandchildren, and relatives who travel in from around the country. In some cases, they are cooped up for the week or more with not much else to do except enjoy family and friends. What an opportunity to call on clients and offer to take them and their kids for a holiday lunch or breakfast. This is certainly not the time to pull out the financial plan, but what a time to get to know the extended family of your best clients with whom you have built a warm and trusting relationship. After years of hearing prideful stories about the kids and grandkids, it’s about time you got to meet them.

Nov 2023

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Commercial Real Estate: Opportunities Below The Surface

This year’s narrow equity market has been a great example of how a broad index is not always perfectly representative of the constituents that make up that index. Some sectors are likely overpriced while others represent significant value. Uncovering the opportunities and balancing the potential risk in markets like this requires a deep analysis beyond a broad index. - Market volatility often leads to opportunities as asset classes, sectors, and securities can become mispriced or overlooked. - Volatility in the CMBS market has created opportunities for active managers that can add value through sector and security selection. - With nearly 50% of the outstanding CMBS falling into the office and retail space, using an actively managed product for CMBS exposure can help mitigate risk. - The flexibility of active bets within the portfolio allows for tilts to stronger performing sectors and securities that offer value. We believe the addition of actively managed CMBS exposure can help diversify a fixed income allocation and provide an attractive yield with less interest rate risk.

Nov 2023

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Why Holding or Moving to Cash Now May Be a Losing Proposition

While money market and Treasury Bill rates look attractive and deserve an allocation in a diversified portfolio, overweighting them too much and forgoing opportunities elsewhere may result in regret in the not-too-distant future. Diversified intermediate- and longer-duration high quality fixed income offer compelling income and potential capital appreciation opportunities. Additionally, dividend income from high quality equities is more attractive than it has been in some time so investors should also consider allocating to that area of the market.

Oct 2023

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Why Investors are Betting Against History and How We Can Avoid It

Don't bet against history! It's important to recognize that recent broad based equity market gains have been driven by a limited number of companies. It's what we call a narrow market rally. As a result, the Russell 1000 Growth Index is trading at a 25% premium to its 10-year average, where those valuations now look stretched. Market history shows that valuations eventually matter and once mean reversion kicks in, those market laggards can quickly become leaders. Rather than betting against history, we have been increasingly allocating to fundamental strength in the value style as well as dividend payers that have lagged this year’s market rally. All it takes is a little bit of patience to reap what history suggests will be excellent investment opportunities ahead.

Aug 2023

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U.S. Manufacturing: Set to Become the Next Big Thing

Our work suggests that the U.S. is about to experience in increase in domestic industrial production that is set to last for years to come. The U.S. is poised for an industrial renaissance. While near-term economic challenges persist and may intensify over the coming months, long-term trends in labor force growth, economic freedom, and business investment remain exceedingly positive. Putting all this together leads us to believe that the U.S. is about to embark on a new era of economic growth driven by a growing and increasingly productive private sector.

Aug 2023

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Reading The Tea Leaves: Leading, Lagging & Coincident Indicators

Assessing the health and direction of an economy can be accomplished using economic indicators. These indicators fall into three main types: (1) leading indicators; (2) lagging indicators; and (3) coincident indicators. Each type plays a distinct role in forecasting economic trends and monitoring the current state of the economy. Explore the differences between these indicators and their significance.

Aug 2023

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Unraveling U.S. Recessions: Understanding Indicators and Implications for Investors

We have received a lot of questions regarding economic conditions that are wide ranging but can be boiled down to (1) what is the likelihood of recession in the coming year and (2) what are the implications to investors. In the following articles and video, we unravel the current status of our business cycle, define the indicators that go into our recessionary risk model, and discuss how investors might better navigate the environment.

Jun 2023

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The Paradox of Higher Mortgage Rates: Why Homeowners May Be More Resilient Than We Think

With nearly two-thirds of U.S. households owning their own home, the sharp increase in the cost of home ownership would appear to have negative implications for the economy as household finances may appear strained. However, this may not tell the whole story. While we believe that the current high inflationary environment has created challenges for consumers, we do not believe that higher mortgage rates have had as negative of an impact on the consumer and discretionary income as might be expected.

May 2023

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How Increasing Use of China’s Currency on Global Markets Affects U.S. Investors

The yuan has a long way to go to displace other currencies, such as the euro, let alone the USD. The further ahead we look, the more skeptical we become that the Yuan could threaten the predominance of the US Dollar. Our work suggests that China’s impressive economic growth is in the past and not likely a long-term phenomenon.

May 2023

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How Fracturing Global Trade Networks Can Support U.S. Economic Growth

We have previously written about three important domestic characteristics that we think will act as pillars to support impressive U.S. economic growth in the decade ahead: strong household balance sheets, strong corporate balance sheets, and positive demographic trends. A fourth pillar of economic growth is the fracturing of global trade networks.

Apr 2023

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Why the Fed is Probably Done Raising Rates

Our work suggests that the U.S. Federal Reserve (Fed) is likely done raising short-term interest rates for the current business cycle. Although the Fed has made clear that they expect to increase interest rates an additional 25 basis points (0.25%) this year and then hold them at that level for some time, we expect the Fed to begin cutting interest rates later this year.

Apr 2023

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Changing Labor Force Trends to Go From a Headache to a Tail Wind

Even though the overall size of the U.S. labor force recently hit an all-time high, employers and customers alike feel the pinch of a lack of workers. These frustrations are largely due to a decline in the labor force participation rate of younger workers. As these young people eventually move further into adulthood and enter their prime working years, the U.S. economy has a large store of untapped labor to propel strong economic growth for decades to come.

Feb 2023

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The U.S. Financial Picture Is Better than You Think

Despite headlines to the contrary, the U.S. debt burden and interest expenses seem quite manageable relative to historical norms. While the nominal level of debt outstanding and interest expenses are quite high, compared to government revenues, which are also quite high, the situation actually compares favorably to previous environments which saw strong, economic growth.

Jan 2023

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Fixed Income Windows of Opportunity

Innovations in the ETF landscape now provide many excellent options for investors to compliment and tweak a bond strategy to help them better match the environment.

Dec 2022

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The Holidays Are A Gift

Regardless of the generation, wealth management clients want to work with advisors that understand their priorities and can help them reach their family's goals. Getting this idea across to the next generation is critical to success, and the holiday season is an excellent opportunity to do just that.

Nov 2022

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The Key to a Housing Market Recovery

Oct 2022

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The U.S. Economy is Bigger Than Politics

As we face midterm elections in the coming months, it is important to have some perspective on what really contributes to U.S. economic growth. Despite the rhetoric, the long-term growth of our economy is not in the hands of government officials.

Sep 2022

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Active Management During Yield Curve Inversions

With interest rate volatility high and the yield curve inverted, fixed income investors are facing new challenges. How should investors respond to this new environment?

Sep 2022

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With Mixed Economic Signals, What Should the Fed Do?

Recent reports are confirming that the pace of U.S. economic growth has clearly slowed. Meanwhile, jobs growth remains strong and inflation-adjusted income growth persists, albeit slowly. The Fed is nearing a critical point in their approach. In this article, we discuss how we think the Fed should respond.

Aug 2022

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Will It Be A Soft or Hard Landing? How To Track The Fed’s Glidepath

While getting inflation down to the Fed’s long-term target without causing a recession is quite difficult, it is possible. Importantly, we can track the Fed’s progress towards this goal in real time. In this article, we discuss some of the signposts pointing the way to success.

Aug 2022

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Equity Investing For Uncertain Times

With the current environment full of geopolitical, economic, and market uncertainty, it can be even more difficult for investors to remain disciplined and stick to their financial plan. Picking an investment solution that can provide an opportunity for long-term gains while also helping sooth investors’ nerves may help investors stay the course. Investors may be better able to sleep at night by owning more defensive equity positions.

Jul 2022

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U.S. Labor Market Strength: Payrolls Outpace Inflation

The June jobs report made headlines with an additional 372,000 jobs created during the month, which equates to more than 2.7 million new jobs added to payrolls in only the first half of this year. But did you know that payrolls are growing so fast that workers are beating the high rate of inflation overall?

Jul 2022

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Summer Recession – Are We There Yet?

While there is no doubt that the U.S. economy will eventually enter a recession, it is important to keep in mind that recessions are not one size fits all and vary greatly in depth and duration.

Jul 2022

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Who Should We Blame for Inflation: The Fed, Biden, or Putin?

The inflation that we are experiencing is mainly a result of U.S. Federal Reserve (Fed) policies that have been too loose for too long and remain overly accommodative in our view.

Jul 2022

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Perspectives, Planning, and the Recent Market Drawdown

Recent market weakness has created a challenging environment for investors, especially for those with shorter time horizons that are preparing for or are already in retirement. It is easy to only think about the market relative to a recent high-water mark. Or, as the case has been recently, from near-term performance as we have seen an abundance of stimulus create a rising tide significantly higher than the long-term market averages would suggest over the past three years. Read our recent commentary below.

Jun 2022

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Interest Rates to Break Out of 40-Year Cycle-to-Cycle Trend

Since the 1980s, each successive business cycle has exhibited a peak in inflation as well as interest rates at levels that were lower than the previous cycle. However, inflation recently broke out of this long-term downtrend in a big way. We think that persistent economic growth combined with the recent inflationary breakout creates an environment where interest rates will move past their declining, down-trending pattern as well. It is now likely that short-term interest rates can climb to nearly 3% with long-term interest rates heading towards 4%. Importantly, these higher interest rates in the years to come should eventually benefit savers and bond investors who count on current income from high-quality fixed-income investments. Read our full article below.

Apr 2022

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Why We Have Inflation in One Picture

Unprecedented stimulus in all its forms has caused U.S. households, in aggregate, to become wealthier than ever. At the same time, job openings outnumber available workers as wages are pushed higher. We think this is a classic environment of too much money chasing too few goods, and inflation will likely remain with us for longer than many policy makers expect.

Mar 2022

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More Signs the U.S. Economy Is Powering Through Omicron

Despite headwinds related to the ongoing pandemic, we see signs that the U.S. economy’s growth endures. The strong January jobs report is just one example of this continued economic strength. While the January jobs report beat expectations, we do not put much weight on any single monthly report due to the statistical noise and other factors, such as the large amount of uncertainty around omicron. Based on these factors and more, our work suggests that we should be optimistic about economic growth as well as the strength of the private sector including households and businesses. As a result, we think that the recent equity market weakness will reverse in the coming weeks, and we view the recent market volatility as a buying opportunity.

Feb 2022

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Three Reasons Why the Recent Market Volatility Is A Buying Opportunity

Our work suggests that while volatility may continue and we may not have seen the bottom of the current pullback, this volatility represents an excellent buying opportunity.

Feb 2022

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Planned Fed Interest Rate Hikes Set to Release $1 Trillion in Additional Stimulus

What started as a concerted effort by government entities including the U.S. Treasury and the Federal Reserve to help stimulate the U.S. economy during the depths of the COVID economic crisis has resulted in over $1 trillion looking for a home.

Jan 2022

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Preparing Fixed Income Allocations for the Year Ahead

Managing fixed income strategies in a low interest rate environment has been a challenge for years.

Dec 2021

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Will Higher Federal Tax Rates Affect the U.S. Economy?

We hear a lot of concern about proposed increases in federal tax rates. At the broadest level, tax rate adjustments can be very impactful for an individual and corporation.

Dec 2021

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Supply Chain Bottlenecks Are Only Half The Story – Massive Consumer Demand & Spending Have Outstripped Supply

Recent shortages are not only due to COVID-19 related lockdowns restricting supplies. In many cases, demand is also running far stronger than it did during the previous business cycle.

Oct 2021

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Powerful Forces Keeping a Lid on Long-Term U.S. Interest Rates Despite a Fed Taper

Financial markets have begun to price in the possibility that the U.S. Federal Reserve (Fed) will reduce, or taper, its purchases of U.S.

Oct 2021

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What Is Behind the Supply Chain Disruptions?

While shortages for all manner of goods have been a hallmark of this pandemic induced recession and recovery, it is important to understand what is driving these issues.

Sep 2021

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It’s Time for the Fed to Taper, Despite the Soft Jobs Report

During the depths of the COVID pandemic economic crisis, the U.S. Federal Reserve (Fed) committed to a series of supportive monetary policies that included bond purchases.

Sep 2021

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Infrastructure Bill Expected To Have Muted Real Economic Impact

The Infrastructure Investment and Jobs Act passed with a 69 to 30 vote in the Senate and is on its way for approval in the House of Representatives.

Aug 2021

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What Is Driving Negative Real Yields and What It Means For Our Economy & Markets?

The real yield, which is the yield an investor receives after adjusting for inflation, on the 10-Year U.S. Treasury bond recently reached a record low level.

Aug 2021

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Positioning Fixed Income for the Fed and Inflation

The most recent Federal Open Market Committee (FOMC) meeting triggered a response in both equity and fixed income markets reversing the inflation trade that has pushed longer term interest rates up and put value in favor over growth stocks.

Jul 2021

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Housing Boom to Continue, and For Good Reasons

The housing industry has been a bright spot in the post-pandemic economic recovery, and we expect strength in that space to endure.

Jun 2021

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The China Recovery Brings Risks to Emerging Market Investors

Global central banks have been largely accommodative as they battle the impacts of the pandemic on their economies.

Jun 2021

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Interest Rates – Make Mine A Double

Our work suggests that U.S. economic prospects continue to brighten.

May 2021

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The Narrow Market Recovery Revisited

Last September we published a commentary and video discussing the narrowness of the stock market recovery to that point.

Apr 2021

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The Fixed Income Conundrum: Part 2 Diversification Solutions

For investors and advisors, planning for income has been a consistent and escalating challenge for more than a decade.

Apr 2021

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The Fixed Income Conundrum: Part 1 Understanding the Challenge

It has been 20 years since the beginning of what was known as the “lost decade” in equities.

Mar 2021

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