On Friday, the Trump administration issued a memorandum asking the Department of Labor to review the so-called “fiduciary rule” governing retirement savings and investment accounts before its implementation in April of this year. Washington DC and regulation being what it is, for all intents and purposes this indefinitely stays the rule. According to a news release from the DOL’s Acting US Secretary Ed Hugler “The Department of Labor will now consider its legal options to delay the applicability date as we comply with the President’s memorandum.”

It is important to note that, despite a lot of hand-wringing from the press, lobbyists, politicians, financial institutions, investor protection groups and other stakeholders on both sides, the rule had not yet gone into effect, so this step more or less maintains the status quo. While we are hopeful in the long term that legislators, regulators, financial consumers and industry participants will come to terms on an approach to rulemaking which adequately serves the needs of retirement investors and hopefully all investors, our focus is on how those investors are served today. Continue reading

Yesterday, with the usual fanfare and breathless commentary from the financial media, the Dow Jones Industrial Average, the dean of US equity indexes, crossed 20,000 points. Is this significant, and if so, where does the market go from here?

In short, no, on its own it is not significant. Market watchers imbue these big round numbers with magical properties, but there really is nothing intrinsically wonderful about 20,000. Numbers that were more important in recent months and years were 18,000 (rounded), which the DJIA could not seem to shrug off from late 2014 until just this past October, and 16,000 (also rounded), which the average kept revisiting from as long ago as late 2013. That represents about 12.5% of return that kept coming and going for more than two years. The meaningful moment was when the DJIA broke out of that band in early November of 2016 and never looked back at it. Continue reading

As we look forward to 2017, we see selective opportunities for positive returns across risk assets, with a continuing preference for the United States. Our optimism is tempered by the recognition that it is highly dependent on the actions of President-Elect Donald Trump and the Federal Reserve, and the growing influence of populism globally. In formulating our views, we continue to reflect on what dominated the headlines and drove markets over the past year. 2016 got off to a very rocky start with the MSCI World Index falling by 2 percent on the first day and U.S. equities recording the worst-ever start to a year. Concerns about the Chinese economy sent global markets into a tailspin. But at the risk of overusing a tired turn of phrase, it was a “tale of two markets” as trends reversed in the second half of the year, as investors moved past the surprising results of the Brexit referendum and Mr. Trump’s presidential victory to push indexes to new highs. To wit, several of these market drivers may prove to be prologue to what unfolds in the New Year.

Click here to read the full report:  WCM 2017 Outlook

Our thesis through most of the post-crisis (2008+) period has been that Europe would trail behind the United States economically by about two years, following in our policy footsteps, as well as consumer and investor footsteps. Many of the same forces have been propelling each economy forward, and similar headwinds have been holding each back. One of the most significant factors has been central bank policy. The US Fed moved aggressively to stop the bleeding by employing extraordinary measures to hold back rates and make access to capital cheaper. Fiscal hawks in Europe chose the path of austerity, and the ECB and member countries did not finally come around until the US had lapped them in terms of recovery and growth.

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Thanks to Alex Steger for the thoughtful mention of WCM on the CityWire website last night.

“Three former UBS gatekeepers have reunited at an RIA to offer their asset allocation and model portfolio building skills to advisors and wealth managers…”

Click this link to open a PDF of the article, or click here to visit CityWire’s site directly.

To no surprise, the Federal Reserve voted to raise its short-term interest rate target yesterday.  The move brings the federal funds rate – the overnight lending rate between banks – to a range of 0.50% – 0.75%.  The market expected this move based on recent Fed governor comments and the trends of its two primary bogeys: employment and inflation.  With unemployment at 4.6% and inflation moving toward the 2% target, the planets were in alignment for the rate move.  No doubt the committee members were also influenced by President-elect Trump’s stated policy agenda of fiscal stimulus, tax reform and regulatory reform, all of which should serve to spur U.S. economic growth (although there was no mention of these considerations in the Fed’s post-meeting statement).

Although the Fed met near-term expectations, markets sold off yesterday as investors assessed the latest “dot plot” which details the anticipated trajectory of rates over the next few years.  The chart indicates three rate increases in 2017, an increase from two in the Fed’s September statement.  More rate increases translate to higher borrowing costs which could stilt the impact of Mr. Trump’s intended policy actions, giving investors pause.  But, a lot of factors will determine the future path of interest rates – investors shook off their initial concerns and the equity rally resumed today.

At WCM, we view the Fed’s actions as progress towards interest rate and central bank policy normalization.  As asset allocators, we look forward to the time when market returns are driven by corporate earnings, economic fundamentals, and valuation, rather than monetary policy manipulation.

Not where we expected, and not where most market observers expected either. Putting the US Presidential election to the side for the moment, the 9% US equity market swoon to open the year left people thinking finishing the year flat would have been satisfying. Finishing the year with a return of inflation plus a dividend would have been a triumph. Right now we are looking at a market that is up as much in the closing weeks of the year as it was down in the opening weeks, which is heroic.

Getting the razor out and cutting a little more finely, the recent bottom on November 4^th had us very close to expectations – flat to barely positive. Looking just at that US large cap equity return, for all intents and purposes all of the YTD return came since the election. What about the rest of the world? In equity terms, varying degrees of the same good news. Germany, Japan and others similarly bounced off an early November bottom. Even the UK is showing mild resilience. Returns are not as dramatic, but still bucking expectations. Populist revolts are not supposed to signal a good climate for investing in businesses, but there it is.

Counter intuitiveness extends into the bond market as well. Yields rise and equities are supposed to fall. But, the benchmark 10 year Treasury yield has climbed 70bp over the same period as the equity returns discussed. We can assume the anticipation of Fed action to raise rates, a more business-friendly policy climate in Washington DC, and a general sentiment that the dollar is a haven, account for the positivity of equity buyers.

Where does it go? Markets may need to re-rate equities based on the new political climate. Valuations looked full assuming a more-or-less status quo election outcome. But now, in an environment of US-first, business-first governing there may be a case to revisit corporate prospects, at least for those companies with US-centric workforces and supply chains. This may be a case for investing in small- and mid-sized companies that are generally more likely to be home biased in their inputs and customers. As for bonds, that “thud” we just heard may be the other shoe finally falling (along with bond prices) after years of anticipation.

We have just published our monthly wrap-up with some post-US election observations about effects on the capital markets.

Investors witnessed a wide divergence in performance across capital markets in November. U.S. equities and segments of the commodity markets rose while most non-U.S. asset classes and bond markets within the U.S. declined.

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We invite you to check out our Library and the latest addition, a brief white paper on asset allocation for individual and institutional investors.

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It may have been an ugly process, and it may not have been the outcome that half the electorate wanted, but the rising certainty that Hillary Clinton had a clear path to the White House instilled some degree of comfort in global markets. Clinton being more or less a status quo candidate, market participants could at least anticipate an environment of incrementalism in matters of trade, healthcare, social and environmental policy, particularly if she found herself squaring off against an opposition party legislative branch. The prospects with the more mercurial Donald Trump and his platform of disruptive change were far more uncertain. His adversarial stance on foreign trade and immigration, his desire to abruptly terminate ACA, and deregulatory mindset would likely introduce a great deal of volatility in work markets simply because investors are unsure how to “trade Trump”. This is not an assessment of the relative merits of either candidate – only an observation that markets tend to be better behaved when there is greater clarity on policy.

There have been so many “October surprises” so far that little else could have been envisioned. We had both Trump’s and Bill Clinton’s peccadilloes with women discussed and even paraded before the cameras, repeated hacks and Wikileaks disclosures of the DNC’s and Clinton campaign’s internal correspondence, and unprecedented animosity on stage in the debate arena. It figures when the bar of surprise was already raised so high that it would take an Olympic pole vault to clear it, and FBI Director James Comey took his run at it last Friday. His letter to Congress regarding the possible pertinence of emails from the Anthony Weiner “sexting” investigation to the Clinton email investigation was profound in its electoral implications on its own, and was further compounded by the posting of files from the end of Bill Clinton’s Presidency pertaining to the pardoning of Marc Rich. Director Comey has put the FBI and Justice Department in the unprecedented position of being a last-minute spoiler in a Presidential election. Polls immediately tightened, Republicans closed ranks, and the election picture got a lot fuzzier.

Our concern as investors is not that Trump’s odds have improved. It is that we have lost a lot of confidence in the outcome, and that either candidate as a winner comes with a lot of potential disruption in his or her wake. We now face the prospect that Clinton as President-elect could be mired in controversy, Federal investigation, and worst-case, if there actually is fire to go with the smoke, that she could be indicted before she ever takes the oath of office. Add to that the rhetoric attempting to delegitimize election results ahead of the polls and we could be facing turbulent times ahead. The status quo candidate has become anything but. The Washington outsider, followed by his own controversies and lack of clarity on how he would build his administration, presents no more certainty.