Archive for heritage market brief

Monthly Market Brief- November

Each month, our Heritage Investment team publishes a market brief to provide an overview of the major factors influencing the US economy, including a summary of key sectors and the current positives & challenges.

Click Market Brief November 2016 for the November 2016 update.

Here are some key highlights:


o Consumers continue to remain healthy and rounded out the 3rd quarter in September with personal income increasing by 0.3% and consumer spending increasing by 0.5%
o The October ISM Manufacturing Index reading of 51.9 signifies the U.S. economy and manufacturing sector remain in growth territory despite declining new orders and a continued contraction in backlog orders
o Average hourly earnings increased 0.4% in October to bring the year-over-year rate to a recovery peak of 2.8%
o October vehicle sales came in at a very strong annualized 18.3 million to further highlight the strength of the consumer
o October non-farm payrolls added a respectable 161,000 jobs, bringing the year-to-date average to 181,000


o While 3rd quarter annualized GDP growth came in at a solid 2.9%, 1.2 points came from exports which were largely driven by a surge in soybean exports
o Construction related spending declined 0.4% in September for a year-over decline of 0.2%


Monthly Market Brief- October 2016

Each month, our Heritage Investment team publishes a market brief to provide an overview of the major factors influencing the US economy, including a summary of key sectors and the current positives & challenges.

Click Market Brief October 2016 for the October 2016 update.

Here are some key highlights:

Americans continue to clean up household balance sheets by significantly lowering average mortgage payments to 11.7% of income, down from approximately 19.5% at the peak of the Great Recession and average over the last 40 years
oVehicle sales rose to an annualized 17.8 million units in September, up a surprising 4.7% from August
oWhile non-farm payroll growth was relatively soft compared to the last three months, 156,000 jobs were added in September
oBoth the ISM manufacturing and non-manufacturing indices rebounded in September, suggesting that the significant decline both experienced in August was an anomaly

oThe labor force participation rate remains at a low of 62.8% since the peak of the Great Recession, and while a good portion can be explained by those choosing to retire, the aging effect and cyclicality do not tell the whole story
oAs of September 30, 2016, the real yield on a 10-year treasury was -0.70%; thus, savers are not being compensated adequately for inflation and are in essence paying to save
oSoft consumer spending and capital goods shipments will likely weigh on third quarter GDP growth; thus, market expectations for a November interest rate hike have cooled

Monthly Market Brief- September

Each month, our Heritage Investment team publishes a market brief to provide an overview of the major factors influencing the US economy, including a summary of key sectors and the current positives & challenges.

Click Market Brief September 2016 for the September 2016 update.

Here are some key highlights:

o While non-farm payrolls added a softer 151,000 jobs to the market in August, the 3-
month average of 232,000 job additions remains above the recovery average of 200,000
o Consumer confidence remains high which should bode well for near-term U.S.
economic growth
o According to Baker-Hughes, the North American rig count is down 50 rigs compared to last year
o With S&P 500 companies posting negative earnings growth for six consecutive
quarters, corporations are beginning to reduce share back buybacks and slow dividend
o The economy-weighted manufacturing plus non-manufacturing composite index fell
from 55.1 to 51.2 in August, the lowest reading since January 2010
o While a 12% year-over-year decline in farm prices may bode well for consumers, costs
likely outweigh the benefits as already tight producer margins become tighter and
impact agricultural related companies through lower producer spending
o A labor shortage of nearly 200,000 unfilled construction positions is resulting in higher
builder costs and leaving entry-level homes in tight supply as builders are building more
expensive homes to try and maintain margins


Heritage Market Brief – May 2016

Each month, our Heritage Investment team publishes a market brief to provide an overview of the major factors influencing the US economy, including a summary of key sectors and the current positives & challenges.

Click here for the May 2016 update.

Here are some key highlights:


o With a recent increase in fuel consumption, a series of supply disruptions, and production outages, global supply has somewhat rebalanced and driven crude oil prices to new 2016 highs

o The nation’s trade deficit narrowed more than expected to $37.4 billion and should positively impact second quarter 2016 GDP

o While consumer confidence remains somewhat mixed, future income expectations ticked up along with an increase in consumers expecting to buy a car or home within the next 6 months

o Labor markets continue to show strength as highlighted by a 7,500 decline in the four- week moving average of jobless claims to 269,500


o The World Bank once again lowered its global growth estimate by 0.5% to 2.4% citing a weaker outlook for commodity exporters and a challenging external environment with soft investment amid weaker growth prospects and elevated policy uncertainty

o The service sector, which is driven by the strength of the domestic consumer, is turning noticeably lower as indicated by a decline of 2.8 points in the ISM non-manufacturing index to 52.9 as well as a decline of 1.5 points in the services PMI to 51.3

o As wages continue to lag, inflation remains flat with the PCE Core Index struggling to meet the Fed’s 2% target

o The nation’s oil patch still remains in extended contractionary territory despite WTI surging 60% since February; as long as oil prices remain stable to increasing, these territories should start to benefit

INVESTMENT OUTLOOK – 2nd Quarter Heritage Market Brief


Second Quarter 2016


  • Despite a number of positive economic releases, the Fed made an unsurprising decision in March to leave the Fed Funds rate at a target of 0.25%-0.50%, citing spillover risks from weakness in global economic growth.
  • The U.S. labor market continues to improve as 215,000 jobs were added in March, and the labor force participation rate finally made a move in the right direction to 63% from a cycle low of 62.4% in September 2015.
  • Despite recent interest rate increases, the FOMC remains committed to gradual increases while balancing long-term goals of maximum employment and inflation of 2%.
  • While average hourly earnings increased 2.3% year-over-year, Fed policy makers believe increases of 3%-4% would have to be seen before materially impacting prices.
  • The U.S. consumer remains healthy with real disposable income increasing 2.9% year- over-year; however, this has not yet translated to a considerable increase in spending.
  • Thin inventory and strong demand continue to push housing prices higher, with many markets rising to pre-financial crisis levels.
  • The March ISM Manufacturing Index reversed a contractionary trend in place since September 2015 as it posted a reading of 51.8, driven largely by new export orders.
  • Inflation remains below target as indicated by the year-over-year Core Personal Consumption Expenditures Index (PCE less food and energy) reading of 0.96%.
  • The Fed’s median forecast for 2016 GDP growth is 2.4%; however, this may prove difficult if consumers continue to save increased disposable income rather than increase spending.



  • While interest rates remain range bound, individual bonds held to maturity should continue to provide downside protection.
  • It is likely that volatility will continue as the Federal Reserve is expected to continue raising interest rates, S&P 500 stocks no longer appear cheap relative to earnings, and revenue growth remains challenging.
  • Emerging market economies remain at risk to rising U.S. interest rates; however, the asset class should be additive to long-term returns as demographics are favorable and the sub- asset class remains attractively valued at less than 11 times next year’s estimated earnings.


Even after the Federal Reserve raised interest rates for the first time in nearly a decade in December 2015, we expect the central bank to remain committed to an accommodative monetary policy which should keep current yields low relative to historical levels. Thus, we believe an overweight in stocks relative to bonds is appropriate from a risk/return perspective. Our focus on valuations has led us to believe that U.S. small-cap stocks are becoming more attractive after underperforming their large-cap counterparts for the last two calendar years. We are still maintaining our underweight to U.S. small-cap equities
but to a lesser degree than over the past couple of years. Despite weaker growth outside the U.S., we remain disciplined and maintain a strategic allocation to foreign markets, especially emerging markets where valuations appear much more attractive. Foreign small-cap stocks should be additive to the portfolio return in the long-run as small-cap companies tend to enjoy higher earnings and cash-flow growth relative to large-cap companies. Since, much of our small-cap exposure is in European small-cap companies, European accommodative policy should prove to be beneficial in the long-run as well. While our fixed income exposure remains underweight due to the current risk/return profile, we continue to purchase individual fixed income securities as bonds play a vital role in the portfolio.

We believe alternative exposure remains vital to portfolio diversification. While
we maintain a position in U.S. REITs, we have taken the opportunity to trim where necessary due to our belief that the asset class has potentially reached overvalued territory after outstanding growth throughout the recovery.

These views represent the opinion of the Security Selection Committee which are based on qualitative as well as quantitative factors. These quantitative factors are primarily driven by valuation research which then forms our subjective assessment of the relative attractiveness of asset classes and subclasses over a 3- to 5-year time horizon.