George Hosfield, CFA, discusses Ferguson Wellman's quarterly strategy titled, "Inflation's Flame Flickers," which addresses the narrow market leadership, the impact of higher interest rates on inflation and how assets are priced at this stage of the economic cycle.
George Hosfield, CFA, discusses the firm's quarterly strategy titled "Stalemate," which highlights the Fed's ongoing battle to tame inflation along with our views on the health of the banking industry and capital market expectations for the balance of the year.
Director and Chief Investment Officer George Hosfield, CFA, discusses the Fed raising interest rates, peaking inflation and our view on equities and volatility across all asset classes in our Investment Strategy titled, “Balancing Act.”
U.S. factory production exceeded growth expectations and the University of Michigan consumer confidence survey came in at a 14-year high, helping U.S. stocks to break out of their four-day slump (triggered by tariffs and White House turmoil). However, it won’t be enough to turn in positive numbers for the week.
U.S. stocks continued their upward climb this week, with the Dow Jones Industrial Index trading above 25,775 and the S&P 500 rising approximately 1.5 percent for the week. The U.S. dollar traded off relative to the euro, which surged to a three-year high of $1.21.
Stocks climbed in the U.S., Asia and Europe as the U.S. government averted a shut down and the jobs report reinforced optimism. The U.S. added 228,000 jobs in the month of November, higher than the expected addition of 195,000 jobs, due to an accelerating hiring trend which economists expect to continue into the next year. The S&P 500 hit new highs today, trading above 2,650.
Stock markets were higher this week, despite Hurricane Harvey and a weaker-than-expected jobs report. The S&P 500 was up 1.5 percent, ending the week close to the all-time high of 2,480 from early August. Bond yields slid slightly lower, with the benchmark 10-year Treasury yield dipping to 2.14 percent. August’s nonfarm payrolls report showed a gain of 156,000, which was below the expected 180,000 jobs.
Equity markets sold off on Friday, but were mixed for the week. The S&P 500 closed out the week slightly higher, returning a positive .45 percent for the week. The Dow Jones Industrial Index ended the week about -.30 percent lower, with energy leading decliners. The Nasdaq returned a strong 1 percent for the week.
Global elections continue to stir up markets this week. U.S. stocks and the dollar rose as the British pound declined after the U.K.’s Conservative Party lost its parliamentary majority just as the Brexit negotiations begin
The S&P 500 headed toward a third weekly increase on a rebound in hiring and economic optimism. The benchmark 10-year Treasury is currently trading at a yield of 2.35 percent, which is lower for the day but seven basis points higher than last week. The euro reached its highest level of the year, at 1.098, against the U.S. dollar, rallying on polls that favor a Macron win in France. Oil regained 2 percent after briefly dropping below a six-month low of $44 per barrel due to mounting concerns over a supply glut.
Most markets, international stocks and the U.S. Dollar ended the week near where they started. Stocks are quietly ending a strong first quarter, with this week leaving the S&P 500 up a little over 1 percent and the Dow Jones up about 0.5 percent.
Treasuries are wrapping up with their first weekly gain since the U.S. election and stocks are mixed in pre-holiday trading. Yields on the 10-Year Treasury benchmark closed at 2.54 percent, down from last week’s close of 2.59 percent. The S&P 500 and Dow Jones Industrial Index are trading at slightly higher levels than where they started on Monday.
Despite volatility, the stock market appears to heading for a slight gain of around 0.5 percent for the week. Bond yields trended higher, with the benchmark 10-year trading at 1.66 percent versus last Friday’s level of 1.57 percent.
Financial markets were volatile this week, influenced by mixed messages from the Federal Reserve. The Fed minutes released on Wednesday were dovish, suggesting little chance of a Fed rate hike, while San Francisco Fed President Williams
U.S. stocks ended the week near record highs with the S&P 500 trading above 2,170 and the Dow above 18,545. A gain for the week would mark the fourth consecutive weekly advance.
by Deidra Krys-Rusoff Senior Vice President
The S&P 500, Dow Jones Industrial Average and NASDAQ ended the week nearly flat from last Friday, despite a volatile trading day today. The financial sector retreated 1.4 percent, as investors’ hopes of a Federal Reserve interest rate hike dwindled on the release of today’s nonfarm payrolls report. Utilities and phone stocks rose this week, benefitting from the prospects of lower rates. The Bloomberg Commodity Index rose to a seven-month high and is nearing a level marking of a 20 percent advance from the gauge’s January bottom, close to meeting the common definition of a bull market. The dollar dropped and ended the day trading at $1.14 per euro. International markets were mixed, with European stocks slightly down and the MSCI Emerging Markets Index advancing 1.5 percent to a one-month high. The benchmark 10-year Treasury rallied, with rates falling 15 basis points over the week to yield of 1.70 percent.
What’s in a number? A lot, when the number is the nonfarm payrolls reporting significantly weaker than even the most pessimistic economist expected. May’s payroll numbers rose by a mere 38,000 versus the consensus estimate of 160,000. The report further muddied the economic waters by revising the April increase downwards to 123,000 from 160,000 and March’s numbers to 186,000 from the robustly reported 208,000 increase. The Verizon strike temporarily played into these numbers, subtracting roughly 40,000 from the overall job growth that should reverse after the strike ends. This boost, up to what would have been a gain of 78,000, is still shockingly low. The report shows that the labor market deceleration was widespread. Private-sector hiring was at 25,000 versus 130,000 in April and government hiring added a scant 13,000 jobs to the May numbers. Job losses were seen in construction, manufacturing and wholesale trade. Hiring in the paid professional and business sectors also showed slowing.
Markets initially took the news hard: The S&P 500 Index initially dropped as much as 1 percent from a recent seven month high, the dollar sold off against the euro, and bond prices increased dramatically – dropping the yield of the benchmark 10-year Treasury to 1.70 percent from 1.80. However, U.S. equities pared the early losses to around 0.2 percent as commodity producers extended gains.
The unemployment rate fell to 4.7 percent, but this is unfortunately attributed to declining labor force participation or labor force dropouts. This year’s earlier rebound in jobs participation may be stalling out. One good piece of information from the government report was that the broader U-6 unemployment rate (which reflects underemployment) remained steady at 9.7 percent. Another positive note is that average hourly earnings advanced last month by 0.2 percent, which resulted in earnings 2.5 percent higher than last year’s levels.
The weak jobs number almost certainly takes a Federal Reserve rate hike off of the table for June. The Fed governors have repeatedly stated that their policy decisions will be data-dependent and we didn’t have to wait long to hear how the Fed governors feel about the number. Federal Reserve Governor Lael Brainard spoke to the Council on Foreign Relations this morning and stated, “In this environment, prudent risk management implies there is a benefit to waiting for additional data to provide confidence that domestic activity has rebounded strongly and reassurance that near-term international events will not derail progress toward our goals.” Prior to the jobs report release, the market was pricing in one to two hikes for the remainder of the year. Now the market is placing odds of a hike below 50 percent for July, September and November.
One stand-alone jobs number does not make a trend and this could easily be a one-time blip on the radar. As noted earlier, unemployment numbers are often revised in months following releases and this extremely low number may be revised upwards in coming months. While predicting unemployment numbers is a fool’s game, we can confidently predict that everyone will be watching and waiting for the June unemployment numbers release on July 8.
Our Takeaways for the Week:
State and local governments have finally emerged from the shadows of the Great Recession. This debilitating time period had drastic effects on regional economies – high unemployment and low corporate profits shrunk government coffers. Cash flow that would usually flow to infrastructure and pension plans was diverted to aid unemployed voters and plans to spur economic recovery. Government spending was
Deidra Krys-Rusoff, senior vice president and portfolio manager, has been appointed to the Metro Exposition and Recreation Commission (MERC). While new to the MERC, Krys-Rusoff is not new to Metro, having joined the Oregon Zoo Bond Citizens Oversight Committee in 2010, serving as vice chair and chair. MERC works to protect the public investment in three of Metro’s visitor venues: Oregon Convention Center, Portland Expo Center and Portland 5’s Centers for the Arts. Scott Robinson, Metro’s deputy chief operating officer, said Krys-Rusoff was an obvious choice for the position. “Deidra comes from the financial sector. She’s involved in bond markets, which has really helped our oversight committee. She is able to communicate the technical information to the rest of the committee in a way they can understand.”
“Deidra’s commitment to serve our community is very admirable and consistent with the value she brings to our clients and company every day. We are proud of her accomplishments and leadership,” said Jim Rudd, principal and chief executive officer of Ferguson Wellman.
PORTLAND, Ore. – June 10, 2014 – Ferguson Wellman Capital Management recently invited three professionals to purchase additional company shares. Tim Carkin, CAIA, CMT, Mary Faulkner and Deidra Krys-Rusoff accepted the offer, increasing their ownership stake in Ferguson Wellman. Carkin has been with the firm since 2003 and currently heads Ferguson Wellman’s trading and operations departments. Faulkner joined Ferguson Wellman in 2006 and leads the firm’s branding and communications efforts. Krys-Rusoff, who recently celebrated 10 years with Ferguson Wellman, oversees the firm’s municipal bond strategy for client portfolios.
“Tim, Mary and Deidra have all grown the positions they were in when they were first hired,” says Steve Holwerda, CFA, principal and chief operating officer. “We are a better company today because of what they have accomplished in their work.”
In addition to their responsibilities at Ferguson Wellman, these senior vice presidents serve in leadership roles with various organizations in the community. Krys-Rusoff chairs the Oregon Zoo Bond Oversight Committee and is a board member of the YMCA’s Southeast Regional Childcare Council. Faulkner chairs the Lone Fir Cemetery Foundation board, serves on the honorary council for Portland State’s Center for Women’s Leadership and is on the community outreach committee for All Saints School. Carkin is a board member of the Education Recreational Adventures and Oregon Council on Economic Education. He also chairs the Sherwood Budget Committee.
Founded in 1975, Ferguson Wellman Capital Management is a privately owned registered investment adviser that serves more than 650 clients with assets starting at $3 million. The firm works with individuals and institutions in 35 states with a concentration of those clients in the West. Ferguson Wellman manages $3.9 billion that comprises retirement plans; endowments and foundations; and separately managed accounts for individuals and families. In 2013, West Bearing Investments was established, a division of Ferguson Wellman, that manages investment portfolios starting at $750,000. All company information listed above reflects 3/31/14 data.
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Bloomberg Business Week Detroit Pension Proposal Would Shut Out New Hires
September 27, 2013
By Corey Williams
Hoping to stanch some of the red ink flowing from Detroit, its emergency manager is riling the workforce with a proposal to close the city's pension plans to new employees by the end of the year and move the city to a 401(k)-style system that has become the norm in the private sector.
Detroit's underfunded obligations of about $3.5 billion for pensions and $5.7 billion for retiree health coverage are part of the city's $18 billion debt load and a major reason emergency manager Kevyn Orr filed for bankruptcy protection in July.
Now, he wants to end pensions for new employees and freeze benefits to about 18,000 members. Non-taxable annuity savings will be closed to new employees and no future contributions would be accepted after Orr's proposed Dec. 31 "freeze date."
Non-vested active system members also will be frozen out by Dec. 31.
"They took my wages and now they're trying to take my pension," said Mike Mulholland, vice president of American Federation of State, City and Municipal Employees. "All of our people are saying 'what are they doing to us?'
"We've already given concession after concession, and now to be asked to give up more and be put in a defined contribution plan ... they want to force us to take something where we have no security when we retire."
Orr's pension plan has to be approved by Michigan Treasurer Andy Dillon and is one of the strongest challenges to unions in the one-time organized labor stronghold.
It also is likely to continue the parade of court challenges by union leaders who say changes to pensions and bargained health care benefits violate Michigan's Constitution.
But Orr counters that federal bankruptcy law trumps state law.
James McTevia, a Detroit-area turnaround expert, said he is not aware of a previous ruling on the matter, but adds it's clear what Orr is trying to do.
"He is following the natural process for a reorganization," said McTevia, of McTevia and Associates. "That sets up a mechanism to make changes to the entity's debt structure. If the city doesn't have the money to pay (into the pensions), what difference does the law make? If the city can't do it, it can't do it. That contract has to be rejected and another contract has to be entered into."
A draft of the pension proposal was given last week to the General Retirement System, which represents about 20,500 active and retired city workers. AFSCME Council 25 spokesman Ed McNeil said unions have not received the draft.
In it, the city also would contribute five percent of the base pay of non-uniformed workers to the 401-type pension plan.
Overtime, bonuses and longevity pay will not be factored into compensation as they have been in the past. The city will make no contributions to a deferred compensation plan in which participant contributions and earnings on retirement money are tax-deferred.
A separate plan for police and fire retirees still is being worked on and has not been presented to that pension system, said Bill Nowling, a spokesman for Orr.
"But it will be similar" to the General Retirement System plan, Nowling said.
The police and fire system has nearly 12,700 members.
The pension systems, city unions and individual retirees are fighting Orr in bankruptcy court. They don't believe he has proved Detroit is insolvent and complain that he hasn't bargained in good faith.
Mary Estell, a retired Department of Public Works employee, receives a pension of about $2,300 per month after 32 years with the city. She realizes the likelihood of getting more is unlikely.
"At this point, there is nothing we can do," Estell said of Orr's pension plan. "The city doesn't have any money, so we won't get any increase. If the bankruptcy doesn't go through, then maybe there's a chance we will get an increase in the future."
Orr's plan does not say how much would be saved, according to a draft of the proposal.
A spokeswoman for the pension system says officials still are studying the plan. "It really just caught us completely off guard," said Tina Bassett. "It was the first time we saw it."
But any changes could take as long as two decades to make a dent in how Detroit's long-term debt is structured, according to Michael Sweet, a bankruptcy attorney with Fox-Rothschild.
Moving from a defined benefit to a defined contribution plan "isn't going to change the savings tomorrow," Sweet said.
"Kevyn Orr is working on all sorts of different things. One is to address the short term issues and deal with the longer term imbalance of the budget."
Private companies long ago starting shedding plans that relied heavily on employer contributions in favor of those where workers decide how much of their pay they want socked away. As cities and states continue to buckle under the pension and health care liabilities, elected leaders are pushing for similar changes.
"Something has to be done because the pensions are extremely expensive and with the aging demographic, those costs just keep going up," said Deidra Krys-Rusoff, a portfolio manager with Ferguson Wellman, an Oregon-based capital management firm.
Coast Aquarium Freed from Some (High-Interest) Bonds
By Matthew Kish
The Portland Business Journal
November 1, 2013
The Oregon Coast Aquarium this week said it will buy back more than $500,000 in bonds early, another sign that its once-shaky finances continue to improve.
The 1998 departure of Keiko, the killer whale made famous in the movie “Free Willy,” ripped a giant hole in the aquarium’s balance sheet by leaving it without a main attraction.
Since then, the popular tourist venue has struggled to stay ahead of $12.4 million in debt it accrued before Keiko’s departure.
Its finances have been on the upswing since CEO Carrie Lewis set in place a turnaround plan in 2011. It ended its 2012 fiscal year with a nearly $850,000 profit, a huge turnaround from 2011 when it lost nearly $300,000.
This week, it said it will spend $340,000 to pay off bonds due in 2015. It’ll spend another $185,000 to retire part of the $660,000 in bonds that come due in 2016.
Deidra Krys-Rusoff, a portfolio manager at Portland-based Ferguson Wellman who specializes in bonds, said the move will free the aquarium from some high interest payments. The 2015 bonds paid 4.4 percent interest. The 2016 paid 4.5 percent.
“We’re going along well and we’d like to see this continue in the future and I think it will,” said Rick Goulette, the aquarium’s chief financial officer.
