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 (October 4, 2019)

by Asset Allocation Committee Although the convention for measuring earnings is compared to shares, Standard and Poor’s also calculates the level of operating earnings for all the stocks in the S&P 500. The per-share value is calculated by dividing this number by the S&P divisor.  The advantage of this number versus the per-share data is that… Read More »

Asset Allocation Weekly (September 27, 2019)

by Asset Allocation Committee Over the past few months, we have been on “recession watch.”  Our position is that the odds of a downturn are elevated but it is too soon to fully position for a downturn.   The inversion of yield curves is a reliable recession warning.  On the other hand, the economic data continues to… Read More »

Asset Allocation Weekly (September 20, 2019)

by Asset Allocation Committee Interest rates have increased since early September. The 10-year T-note yield dipped to 1.45% in early September but has risen strongly since then.  What has prompted this rise?  Some of the rise appears to be caused by a revaluation of the path of monetary policy. The chart on the left shows the… Read More »

Asset Allocation Weekly (September 13, 2019)

by Asset Allocation Committee In recent reports, we have discussed the yield curve and its value in signaling the business cycle.  One of the problems for investors with using the various permutations of the yield curve as a signaling device is that it gives such early warnings that it may not be all that useful. This… Read More »

Asset Allocation Weekly (September 6, 2019)

by Asset Allocation Committee In 2017, we introduced an indicator of the basic health of the economy and added it to the many charts we monitor to gauge market conditions.  The indicator is constructed using commodity prices, initial claims and consumer confidence.  The thesis behind this indicator is that these three components should offer a simple… Read More »

Asset Allocation Weekly (August 30, 2019)

by Asset Allocation Committee As various permutations of the yield curve invert, projections of recession are increasing.  One of our favorites, the 10-year T-note/fed funds yield curve, has been inverted for three months. This chart shows the history of this yield curve; since 1960, every recession was preceded by an inversion of this indicator.  However, that… Read More »

Asset Allocation Weekly (August 23, 2019)

by Asset Allocation Committee Recession worries have increased due to falling long-duration interest rates and the short-lived inversion of the two-year/10-year T-note spread.  Although this spread is important, it is merely one in a whole series of permutations of the yield curve.  Our preferred measure is the 10-year/fed funds spread because it measures the long end… Read More »

Asset Allocation Weekly (August 16, 2019)

by Asset Allocation Committee As the 10-year T-note yield tumbles, we are reaching a point where the market looks overvalued based on current fundamentals. Our yield model uses fed funds and the 15-year average of the yearly change in CPI[1] along with the JPY/USD exchange rate, oil prices, the yield on 10-year German bunds and the… Read More »

Asset Allocation Weekly (August 9, 2019)

by Asset Allocation Committee Since the end of WWII, there have generally been three factors that have caused recessions.  The first, and most important, is policy error.  Although fiscal tightening can cause recessions, major tax increases have become less common.  The usual source of policy error comes from the monetary side, where the central bank either… Read More »

Asset Allocation Weekly (August 2, 2019)

by Asset Allocation Committee As wages and other costs rise and pricing power appears constrained, there are reasonable worries about the path of corporate earnings.  We use purely top-down analysis to forecast earnings.  Essentially, we forecast the percentage of total S&P company earnings relative to GDP.  We use the nominal GDP forecast from the Philadelphia FRB’s… Read More »

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