Well, actually regifted from last week’s Facebook, Instagram and LinkedIn postings as a reminder to follow us on social media (link icons on the right of your screen).

We highlighted this chart back in late October showing the relationship between the US Institute of Supply Management (ISM) Purchasing Managers Index and Global Corporate Earnings. One of the risks we were concerned about then was if tax reform stalled. That risk appears to be behind us as Congress is set to approve the somewhat controversial tax plan.

Several Wall Street investment firms, notably Goldman Sachs and Barclays, have recently increased their forecasts for global GDP growth to 4% based on improving manufacturing survey data and consumer spending trends. The positive impact on global earnings levels should continue to support global equity price levels even with many market valuation metrics full or in some cases stretched. Robust global economic activity is a welcome development but risks still remain including the path of interest rates in several of the G7 bond markets and geopolitical risks associated with the Korean Peninsula and elsewhere.

Democracy always feels better when standing on the winning side. PM Theresa May got a sense of that in the British snap election a couple months back. PM Angela Merkel is still struggling to assemble a coalition to govern since losing a controlling majority. In Catalonia, PM Rajoy dissolved the regional government, and members of the dissident leadership found themselves in jail or in exile as he called snap elections. That may have added fuel to the fire as Puigdemont and his cadre campaigned from Belgium, or even prison. A theory had been circulating since the separatist movement succeeded in their earlier referendum on independence that the victory, if even legitimate, was the consequence of a vocal and active minority of the electorate, and the majority of Catalans were with greater Spain. That was undoubtedly part of Rajoy’s calculus in calling the election — let the wheels of democracy turn and reassert the will of the true majority.

In thinking about our portfolios, we are not arguing about the merits of the movement. We are contemplating the implications for Spain and for Europe. The international community has come down on the side of Spanish unity, but in a modern Western democracy, the options are becoming increasingly limited when election after election states that a sizeable portion of the population wants an exit. We think it is unlikely that a program of sanctions or even military action would or could be pursued without creating destabilizing ripples in other regions of Spain and across Europe. If democracy, ugly and painful as it is, is to hold and free markets are to follow, we would anticipate Spanish and European concessions to give Catalonia just enough of what it seeks to make it more attractive to stay than to leave.  We see strength in the broad European market and have a long-term view that the Euro will rise, but in the nearer term we could see instability and even retreat in both as concerns about the integrity of the currency come back to the fore and discontent in peripheral Europe puts a tarnish on the economic shine. Germans are having trouble leading the region while they cannot lead themselves, Britain is on its way out, isolationism and nativism are still on the rise, and Macron’s France does not have the economic and political muscle to maintain regional stability on its own. Absent strong, coherent regional leadership, we believe the path to confidence and stability does not begin or end in but certainly runs through Barcelona.

A key sector takes it on the chin…

The US technology sector has been a key leader in the US stock market for the past several years, and this year has been no exception. Yet, the past few weeks have seen a number of dominant technology companies’ stock prices stumbling while the broader market continues to rise. The sector has given back quite a bit of outperformance in a short period of time as the market appears to be rotating away from more growth-oriented toward more value-oriented sectors. The question remains whether the technology sector is simply consolidating outsized gains or does this truly mark a change in market leadership. Technology valuations are trading at a premium to the overall stock market, but not at historical extremes. So, for the time being we view the past few weeks as a healthy consolidation and we will continue to monitor this key position.

This is a great opportunity for worthy charitable causes that address social and economic justice, health and welfare, the arts, etc. to be in the spotlight on a day for giving. ‘Tis truly the season. The problem is that the need is not only once a year. We stuff the shelves at food pantries for Thanksgiving and Christmas but hunger is a year-round problem. We create this day for giving, but the good works of all these amazing organizations are 365. That charitable spotlight today is bright but it is crowded. It is extremely difficult for every worthy cause to get attention, and with too many hands out at one time donors will tend to concentrate on the few and the favorites.

In the last couple weeks we launched the WCM Charitable Fund, a donor advised fund, in partnership with the Triskeles Foundation. Continue reading

It appears that, after consolidating gains relative to global equities over the past several weeks, emerging market stocks are regaining momentum and market leadership. Emerging market equities, particularly in Asia, have many attractive traits including stronger economic and earnings growth as well as favorable valuation readings. Expectations of stronger economic activity in the developed world should also continue to be supportive of emerging market stocks going forward.

After trailing the developed equity markets of Europe, Asia and the Far East (EAFE) for much of the first three quarters of 2017, US stocks have outperformed so far this quarter. Part of international stock market outperformance was attributed to dollar weakness in the earlier part of the year. The dollar has now stabilized and that, along with continued improvement in economic conditions and a supportive fundamental backdrop, should be fuel for further stock market gains.

Have a great holiday week!

With a great deal of excitement and pride during this giving season, we announce the launch of the WCM Charitable Fund in partnership with the Triskeles Foundation.

Every decision about how to deploy money is a capital allocation decision. Whether it is buying a house, investing in the markets, or making a philanthropic gift, our clients direct capital with intentionality and the expectation of a tangible and measurable result, whether it is making a home for family, growing wealth, or supporting good works in the community and the world at large. Even though the decision-making processes are similar, people rarely consider how their motivations for spending and investing might intersect with their motivations for giving and volunteering. Wilde Capital Management believes in the integration of a sense of purpose with both investing and charitable giving, and launched the WCM Charitable Fund to bring it all together.

Continue reading

Volatility readings in the US, as measured by the VIX index, have been trending downward for the better part of two years. However, after reaching a 12-year low on September 29, the VIX or “fear gauge” has climbed over 18% in the past six weeks. Heightened volatility readings can be self-reinforcing and erode investor confidence. Eyes on this key market barometer.

It is with profound sorrow that we make note of the passing of a dear friend and colleague, Harold Yuen, this past weekend. During much of our time as a team in UBS Investment Management, Harold served as the General Counsel to our business. He was always gracious, often humorous, and occasionally bitingly (and deservedly) sarcastic dealing with us. We learned an immense amount from him about how to operate an advisory business in a way that was true to all stakeholders, from our clients to their advisors to the firm and to regulators. At the same time, he taught us how to differentiate between responsible and ridiculous, striking an appropriate balance between observing and honoring the law and letting it suffocate the work we were trying to do for our constituents. It might be best summarized as the practical practice of securities law.

During that time, we also got to be friends and had the opportunity to share in the joys of his life like hearing about his kids’ achievements, and marvel at his extraordinary resilience and spirit as he battled his illness.

This week we say goodbye, but also thank you. He enriched us personally with his friendship, and indelibly suffused what we do as professionals and investors with a sense of both propriety and pragmatism that informed everything we did at UBS, and everything we now do at WCM. Harold, thank you for your friendship and thank you for your counsel. Love ya, man.

— Doug, Jonathan and Mark