Quarterly Investment Outlook: September 2016


·Fed policy appears to be shifting toward price level/nominal GDP targeting.  A price level targeting policy is geared to raising inflation expectations, thereby creating a backdrop conducive to increase spending.  Maintain core TIPS holdings as a hedge.

·Treasury yields are at risk of moving higher.  We calculate "fair value" at 2.3%, using the 10-year maturity.  An overshoot to 2.5%+ would create a buying opportunity.

·The oil markets have largely rebalanced according to energy analyst Matt Conlan, at BCA Research.  We believe there is increasing risk of a spike upwards in 2017.

· Global growth is stagnant, but marginally positive.  Policymakers in the U.S./China, which collectively account for roughly 38% of global GDP, are slowly shifting to targeting more stimulus via fiscal thrust.

·The S&P 500 has entered an overshoot phase, which could ultimately reach 2400.  Over the intermediate-term the market is overbought and may consolidate/correct its recent gains above 2050.

· We are maintaining our defensive industry core holdings, while selectively adding cyclical exposure.  Our foreign holdings in China "H" shares, Japan (currency hedged) and Europe offer better value.

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