Asset Allocation Weekly

Confluence Investment Management offers various asset allocation products which are managed using “top down,” or macro, analysis. We publish asset allocation thoughts on a weekly basis in a special section within our Daily Comment report, updating the piece every Friday.

Asset Allocation Weekly (April 28, 2017)

by Asset Allocation Committee Last week, we discussed the impact of reducing the size of the Federal Reserve’s balance sheet on stocks and bonds.  This week we will discuss the effects of QE on monetary policy. The FOMC dropped rates to near zero by January 2009.  Although European central banks (including the ECB) have since taken… Read More »

Asset Allocation Weekly (April 21, 2017)

by Asset Allocation Committee Last week, we discussed the impact of reducing the size of the Federal Reserve’s balance sheet on the economy.  This week we will discuss the effects of QE on financial markets. The relationship between the balance sheet and equities seems rather straightforward; expanding the balance sheet appears to be clearly supportive for… Read More »

Asset Allocation Weekly (April 13, 2017)

by Asset Allocation Committee The most recent Federal Reserve minutes indicated that the U.S. central bank is preparing to reverse its experiment with quantitative easing (QE) by reducing the size of its balance sheet.  Although the eventual desire to reduce the size of the balance sheet is no real surprise, the timing was unclear.  It now… Read More »

Asset Allocation Weekly (April 7, 2017)

by Asset Allocation Committee In our 2017 Outlook, our earnings forecast for the S&P 500 was $119.45 per share, up from $106.25 in 2016.[1]  Based on new data and other trends, we are raising this forecast to $126.44 for this year.  There are three reasons for the change. The spread between Thomson-Reuters and S&P operating earnings… Read More »

Asset Allocation Weekly (March 31, 2017)

by Asset Allocation Committee Historically, recessions tend to come from three sources—overly tight monetary policy, geopolitical events and inventory overhangs.  The latter has mostly become irrelevant due to improved inventory management, leaving overly tight monetary policy and geopolitical events as the typical causes of downturns.  As our regular readers know, we monitor both quite closely. One… Read More »

Asset Allocation Weekly (March 24, 2017)

by Asset Allocation Committee In a recent Bloomberg Surveillance podcast,[1] Sebastian Mallaby made an interesting observation about the recent Fed tightening.  He noted how the asset markets mostly ignored or cheered the move.  Mallaby suggested that this isn’t necessarily a good outcome, meaning that central bank tightening should not be welcomed by the financial markets.  When… Read More »

Asset Allocation Weekly (March 17, 2017)

by Asset Allocation Committee The FOMC has moved on rates; as expected, the Fed lifted its target fed funds rate to a range between 75 bps and 100 bps.  The projections are for a 1.50% rate by the end of 2017 and a 2.25% rate by the end of 2018. In this week’s report, we want… Read More »

Asset Allocation Weekly (March 10, 2017)

by Asset Allocation Committee As the FOMC prepares to raise interest rates, it’s a good time to update our views on long-term interest rates.  The chart below shows our current estimate of fair value for the 10-year Treasury. The model uses fed funds, the 15-year moving average of CPI (an inflation expectations proxy), the yen/dollar exchange… Read More »

Asset Allocation Weekly (March 3, 2017)

by Asset Allocation Committee Since the election of President Trump, a number of sentiment indicators have risen strongly.  There is concern that the improving sentiment isn’t warranted.  In this week’s report, our research supports the conclusion that improving sentiment is better described as a reflection of the overall state of the economy.  In other words, our… Read More »

Asset Allocation Weekly (February 24, 2017)

by Asset Allocation Committee Emerging market equities have been the best performing asset class year to date among the 12 we use in our asset allocation program.  Given that we currently have no exposure to emerging markets, it makes sense to review this market stance.  The U.S. dollar is one of the key variables impacting the… Read More »

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