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By Washington Trust / April 24, 2019

Money should not be a cause for stress; but our innate fear of the unknown often leads to financial anxiety. This is exacerbated by radio hosts, authors, television personalities, and corporations looking to profit from that fear. Countless articles on retirement planning begin with similar sounding statements: “Have you saved enough for retirement? Most people haven’t”. The question is valid, but the tone is designed to trigger anxiety. Their goal? To get you to purchase their book, subscription, service, etc.

At its core, a financial plan looks at all your current, future, and desired expenses and compares them to your savings and income sources. This article will focus on the three initial steps to developing a financial plan.

Step 1: Estimate your expenses and write them down. This is everything from mortgage payments and grocery bills to a dream vacation and funding education plans for the grandchildren. If you think you may spend money on it, add it to the list. Make a note of whether it is a regular monthly expense, a once in a life-time expense, or somewhere in between. Do not let the numbers scare you; it’s important information and just one step in the financial planning process. Some people find it easier to use a pre-established expense template. Free templates can be found online or we would be happy to provide one.

Step 2: Record all your current and future income. Write down the value of income sources such as your salary, pensions, social security, rental income, inheritance, etc. Make a note of when those income flows begin and end.

Step 3: Document all your assets and liabilities. Keep a list of every dollar, investment, and asset that you own. A checking account? Add it to the list. Your home’s property value? Add it to the list. That little old 401k that you’ve been meaning to roll into your IRA but haven’t gotten around to yet? Add it to the list. Also make note of any outstanding loans you may have. Whether it’s a mortgage, credit cards, or student loan debt, they are all important to track and manage.

These are the first three steps towards building a financial plan. Next time, we will discuss what to do with your collected data. The end result will determine whether the listed expenses and aspirational goals can all be comfortably afforded. Financial planning is not rocket science, but it does require some work. Don’t let the numbers scare you, find pride in turning the opaque into the transparent.


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By Washington Trust / April 24, 2019

Although 2018 ended dismally amidst tumbling financial markets, 2019 kicked off with optimism. Risk assets surged during the first quarter. Global stocks, led by the U.S., soared 12%1. Corporate debt including high-yield produced mid to high single digit returns. The transition by investors from extreme risk aversion to “risk on,” inspired by a shift in Federal Reserve policy, was almost instantaneous.

The Fed Reserve (the “Fed”) hiked the Federal Funds rate by 0.25% every quarter in 2018. After initially projecting 3 or 4 additional increases in 2019, the Fed began to walk back its projections in December 2018. At the Fed’s more recent March meeting, the Fed indicated that no further rate hikes were likely this year and that it would curtail reducing its balance sheet (quantitative tightening) ahead of schedule. Fed speak became progressively more dovish and shifted away from interest rate normalization, leaving little doubt that policy would follow suit in response to market turmoil. As Chairman Powell stated at his March 20th press conference, “The U.S. economy is in a good place and we will continue to use our monetary policy tools to keep it there.”2

The strength of the rally indicates that investors have faith that the central bank’s new tack will keep the economy on track for at least another year or so. This is despite the fact that U.S. GDP growth likely slowed during the past quarter to approximately 1.7% from 2.2% in Q4 20183. While the Fed has merely decided to stand pat, rising prices for financial assets and lower market volatility have contributed to easier financial conditions that are, in and of themselves, supportive of future growth. For example, the interest premium that issuers of high-yield bonds pay over Treasury notes fell 135 basis points (bp) during the 1st quarter 2019 to 3.91% from 5.26%1.

Not only were stocks and corporate bonds rallying during the 1st quarter 2019, Treasuries also performed well. The yield on the 10-year Treasury note declined 27 bp to 2.41% while the 2-year yield fell 21 bp to 2.27%, resulting in a narrowing spread of only 14 bp between the two securities4. Historically, a spread of over a full percentage point has been more typical. Markets are sending a mixed message in that investors usually bid up Treasuries to find a safe-haven in times of financial stress. Strength in Treasuries, and a flat, or inverted yield curve, can signal an economic slowdown or worse. Hopefully, this time is different.

Based on our assessment of fundamental economic data, we continue to believe that the U.S. will enjoy another year of healthy, if moderating, GDP growth in 2019 that should approach 2.5%4. The consumer is well positioned to propel the economy. The labor market remains robust. The weak February jobs report was not corroborated by other data and the subsequent March report rebounded to trend. Wage growth has been solid but not strong enough to cause concern from an inflation standpoint. Gains in real disposable income should continue, and the savings rate of 7% is high by U.S. standards3.

Consumers, therefore, have the wherewithal to spend and a healthy increase in consumption is likely. Household debt service ratios are hovering near record lows. With mortgage rates having retreated nearly 0.50% since the start of the year, not only is an increase in refinancing likely but, more importantly, a sluggish housing market should be reinvigorated as affordability improves. Residential investment detracted from GDP in all four quarters of 2018 and we expect a marked improvement this year.

Capital spending was relatively healthy over the course of last year and a continuation of the trend is likely, aided by the rise in energy prices. However, the uncertainty over trade remains an obstacle. Relatively strong growth in the U.S. versus the rest of the world may lead to a further deterioration in our trade balance. Of greater concern for the outlook in 2020 is that growth in government spending may soon “peter out.”

We hold a relatively simplistic view that there are two main drivers of equity market performance: earnings growth and interest rates. After a stellar 2018 when corporate earnings grew in excess of 20%, earnings are only expected to rise in the mid-single digits this year4. Interest rates and bond yields have declined sharply since peaking in November 2018, helping fuel the stock market rally. While short rates appear steady, our sense is that the yield on the 10-year Treasury note has possibly overshot on the downside and will settle into a range of 2.5% to 3.0%4.

Stocks have discounted a lot of potential good news rather quickly. In the span of the first three months of the year, the price/earnings ratio of the S&P 500 Index, based on 2019 forecast earnings, has increased from 15.3x to 17.3x. We believe that the S&P 500 Index is fairly valued in a range of 14x to 18x forward earnings and we can no longer argue that stocks appear cheap while sitting near the top of our valuation range. A sluggish global economy could pose downside risk to our 2019 S&P 500 Index earnings forecast. Geopolitical risks also remain in abundance and we are reluctant to be swept up in the current stock market enthusiasm, becoming overly aggressive.

Given our favorable outlook for the U.S. economy and a benign Federal Reserve, we maintain a positive bias towards the U.S. stock market and anticipate a tame bond market. However, with stocks having climbed so sharply in the past quarter, gains are likely to be more muted for the balance of the year. We would, in fact, encourage investors to double check their asset allocation and pare back equities into the current strength to their target, if necessary.

Sources: (1) Factset; (2) Federal Reserve Board; (3) US Bureau of Labor Statistics; (4) Washington Trust Wealth Management. The views expressed here are those of Washington Trust Wealth Management and are subject to change based on market and other conditions. Investment recommendations and opinions expressed in these reports may change without prior notice. All material has been obtained from sources believed to be reliable but its accuracy is not guaranteed. Investing entails risk, including the possible loss of principal. Stock markets and investments in individual stocks are volatile and can decline significantly in response to issuer, market, economic, political, regulatory, geopolitical, and other conditions. Investments in foreign markets through issuers or currencies can involve greater risk and volatility than U.S. investments because of adverse market, economic, political, regulatory, geopolitical, or other conditions. Emerging markets can have less market structure, depth, and regulatory oversight and greater political, social, and economic instability than developed markets. Fixed Income investments, including floating rate bonds, involve risks such as interest rate risk, credit risk and market risk, including the possible loss of principal. Interest rate risk is the risk that interest rates will rise, causing bond prices to fall. Past performance does not guarantee future results. The S&P 500 Index is an unmanaged index and is widely regarded as the standard for measuring large-cap U.S. stock-market performance. In addition, the S&P 500 Index cannot be invested in directly and does not reflect any fees, expenses or sales charges. Further, such index includes 400 industrial firms, 40 financial stocks, 40 utilities and 20 transportation stocks. The information we provide does not constitute investment or tax advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell any security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. Please consult with a financial counselor, attorney or tax professional regarding your specific investment, legal or tax situation.


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By Washington Trust / March 25, 2019

March 25, 2019

New Haven, CT – Halsey Associates has announced that Peter J. Secrist of Fairfield, CT has been appointed Vice President and Senior Portfolio Manager. Secrist, who has more than 25 years of experience in portfolio management and client service, is responsible for advising and overseeing the construction, management, and monitoring of client investments, and is involved with investment research and new business initiatives at Halsey.

Secrist joins Halsey Associates from Northern Trust, where he was Senior Vice President and Senior Portfolio Manager for more than eight years. He graduated with a bachelor’s degree from St. Lawrence University and holds a Master of Business Administration degree in Finance and Investments from the Leeds School of Business at the University of Colorado at Boulder. Secrist is active in his community and resides in Fairfield with his wife and three children.

Halsey Associates, a division of Washington Trust Wealth Management, is an SEC-registered investment adviser headquartered in New Haven, Connecticut. Founded in 1967, Halsey Associates has approximately $946 million in assets under administration.


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By Washington Trust / January 28, 2019

Market Outlook:

  • 2019 S&P 500 Index earnings growth estimate slows to 5% from 20% in 2018
  • Failure to fully resolve trade issues remains a major overhang
  • U.S. equity market valuation is less challenging now at 15.2 x 2019 earnings
  • Expect slightly positive 2019 fixed income market returns as rising coupon income offsets modest capital declines
  • Corporate bonds appear fairly valued as spreads are closer to average; Treasuries, Government Agencies, and CD’s more attractive
  • Short to intermediate muni bonds make sense for high tax-bracket investors while TIPS have some appeal as an inflation hedge
  • European Central Bank has curtailed quantitative easing, removing some liquidity
  • Volatility returns as interest rates rise and liquidity is reduced (potential end of a Financial Repression)
  • Dollar softens after a strong 2018 as foreign central banks attempt to reduce stimulus & Fed closer to end a tightening cycle

Downside Risks:

  • U.S. political risk, especially concerning trade policy
  • Geopolitical risk high around the globe; Europe, Middle East & East Asia are all vulnerable
  • Wage gains accelerate toward 4% (versus current 3.2% Y/Y) resulting in faster pace of rate hikes
  • Synchronization of monetary policy; foreign central banks become more restrictive
  • Return of market volatility harms consumer confidence and consumption slows
  • Increasing supply of U.S. Treasury debt disruptive to fixed income market

Upside risks:

  • Notable improvement in productivity allows for non-inflationary wage growth and higher profit margins
  • Greater political stability in Europe
  • Steadier exchange rates and commodity prices
  • Trade issues recede as agreements reached

Commentary

With apologies to Charles Dickens, 2018 was the “best of times and the worst of times”. The U.S. economy apparently grew at its fastest pace since 2005. (We don’t know for sure as the Bureau of Economic Analysis was shuttered due to the impasse in Washington, although the Bureau of Labor Statistics has remained open.) For the full year 2018, we estimate that GDP advanced just over 3%1. The S&P 500 index, on the other hand, fell by 4.4%2, posting its first negative return in a decade. Benchmarks for smaller capitalization stocks and foreign shares suffered double digit declines. Bonds managed to finish the year essentially flat, erasing earlier losses.

It is not unheard of for stocks to struggle during periods of strong growth, but such episodes are usually accompanied by accelerating inflation. Inflation was well behaved in 2018 with CPI rising just 1.9% year over year. Another possible cause is a deteriorating outlook, but 2018 appears to have concluded on a sound note, at least in the U.S. Consumer spending was strong through November, 2018. (December data is not yet available.) Further, the December employment report was arguably the best in the current cycle and an astonishing 2.6 million jobs were created for the full year3.

Given the economic momentum entering 2019, our expectation is that GDP growth should rise a healthy 2.5% this year1. Jobs remain abundant with the number of jobs outstripping the number of job seekers. Initial unemployment claims, a leading indicator, continue to hover near historic lows2. Given the strength of the labor market, and wage growth at a cycle high, incomes are likely to grow at a solid clip which should sustain a healthy increase in consumer spending. Facing a shortage of workers, growth in business investment should continue as companies spend on technology and automation.

Despite the healthy economic backdrop, market volatility is probably here to stay. Even under our positive scenario, growth will slow. The U.S. was booming and the Federal Reserve (the “Fed”) steadily raised interest rates. As a result, the dollar strengthened, and inflation moderated. We expect both the dollar and inflation to remain near their present levels. One of the disappointments of 2018 was that growth overseas softened. Tighter U.S. monetary policy presented problems for a number of emerging markets. Jitters over global growth and an over leveraged Chinese economy will persist and constitute a larger threat.

It is an understatement to say that economic policy is unsettled. Monetary policy is becoming more restrictive in the U.S. as the Fed hikes interest rates and also drains liquidity by reducing the size of its balance sheet. When interest rates were close to zero, there was no alternative to investment in equities and other risk assets. With Treasury bills now yielding 2.5%, some investors are starting to pull in their horns. Concern over the Fed making a policy mistake by tightening too much became extreme after some ill-advised comments, since walked back, by Chairman Jerome Powell. It seems likely that the Fed will raise the Fed Funds rate another one or two times in 2019 and declare that neutrality has been achieved, thus ending the tightening cycle.

Worries over monetary policy seem overdone. The Federal Reserve appears to be listening to the market and has, in fact, recently scaled back its projections for rate hikes this year, perhaps mindful of the flat yield curve. The last recession induced by the Fed’s interest rate policy dates back to 1982 when Paul Volcker intentionally decided to raise rates until inflation was broken. The subsequent three recessions stemming from the savings & loan crisis, dot.com bust, and the mortgage mess were more a result of financial bubbles and lack of regulatory oversight. There is no similar bubble currently in sight.

Negotiations with China over trade are another major overhang. The Trump administration has appeared overly fixated on the trade deficit while China has been unwilling to quit mercantilist policies inherent to its model of state capitalism. Tariffs may hurt China but offer no overall benefit to our economy. Both countries have much at stake. Because of the relative strength of our economy, the U.S. may currently have an advantage. Both sides have recently evinced hope that the talks are making progress. Geopolitical risk is high around the globe. The U.K. has not managed to come up with a suffplan for a smooth Brexit. Italy is battling with the Eurozone over the size of its deficit and its continued membership in the Eurozone is not entirely certain. Meanwhile the traditional flashpoints in the Korean Peninsula, the South China Sea and the Middle East remain. The U.S. suffered a record-breaking government shutdown at a time when a strong U.S. economy is more vital than ever for global growth. While the economic impact should be marginal, it hardly inspires confidence and the consensus view concerning the probability of a 2019 U.S. recession, while still low, stands at a six-year high of 25%2.

Given our confidence in the Fed’s management and our view that a constructive conclusion to the trade dispute with China and some resolution to the government shutdown is probable, 2019 should be reasonably constructive for investors. The overwrought pessimism of year-end 2018 created a better set up for equities, as valuations dropped to reasonable levels in line with the historical average. Washington Trust conservatively forecasts that S&P 500 Index earnings could grow by mid-single digits to $164 per share which produces a price/earnings ratio of 15.3X1. A 2019 total return in the high single digits appears achievable.

Bond returns will likely continue to be modest; interest income will again be required to offset losses to principal to generate a positive return. The yield on 10-year Treasury note collapsed from 3.25% in early November to 2.55% in late December as pessimism reigned but it has started to recover3. Importantly, credit spreads have recently narrowed, facilitating corporate bond issuance. We expect the yield to potentially rebound above 3% and for the yield curve to steepen modestly. Long-term inflationary expectations are likely to cycle higher to a more realistic 2%1. In the meantime, lower yields should provide a boost to a stagnant housing market.

The current economic expansion will celebrate its tenth anniversary in June and appears on track to become the longest on record. Investors have wondered for a good five years if we are in the 7th or 9th inning of the recovery. Who knows? Expansions do not die of old age. The longest professional baseball game lasted 33 innings (when the Pawtucket Red Sox triumphed 3 to 2 over the Rochester Red Wings). While there may be cause for concern over the 2020 outlook, it is too soon to tell. The data, however, clearly favor continued growth in 2019.

Sources: (1) Washington Trust Wealth Management; (2) Bloomberg; (3) US Bureau of Labor Statistics
The views expressed here are those of Washington Trust Wealth Management and are subject to change based on market and other conditions. Investment recommendations and opinions expressed in these reports may change without prior notice. All material has been obtained from sources believed to be reliable but its accuracy is not guaranteed. Investing entails risk, including the possible loss of principal. Stock markets and investments in individual stocks are volatile and can decline significantly in response to issuer, market, economic, political, regulatory, geopolitical, and other conditions. Investments in foreign markets through issuers or currencies can involve greater risk and volatility than U.S. investments because of adverse market, economic, political, regulatory, geopolitical, or other conditions. Emerging markets can have less market structure, depth, and regulatory oversight and greater political, social, and economic instability than developed markets. Fixed Income investments, including floating rate bonds, involve risks such as interest rate risk, credit risk and market risk, including the possible loss of principal. Interest rate risk is the risk that interest rates will rise, causing bond prices to fall. Past performance does not guarantee future results. The S&P 500 Index is an unmanaged index and is widely regarded as the standard for measuring large-cap U.S. stock-market performance. In addition, the S&P 500 Index cannot be invested in directly and does not reflect any fees, expenses or sales charges. Further, such index includes 400 industrial firms, 40 financial stocks, 40 utilities and 20 transportation stocks. The information we provide does not constitute investment or tax advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell any security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. Please consult with a financial counselor, attorney or tax professional regarding your specific investment, legal or tax situation.


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By Kimberly I. McCarthy, Esq. / January 28, 2019

The Tax Reform Act changed so many income tax provisions affecting individuals, corporations, pass-throughs, and specific industries that it is impossible to provide a brief and succinct overview of new planning opportunities. But here are two tax-planning acronyms to consider in 2019:

Post-Reform Philanthropy with a DAF

2019 will be a year to rethink charitable giving. “Bunching” – making several gifts in a single year rather than smaller annual gifts – is one widely recommended technique to address the changes to itemized deductions. Using a donor advised fund – a “DAF” – can take “bunching” to the next level. 100% of the deduction is immediately available, but gifts can be made over any time period and to almost any charity. Even more, the DAF sponsor assumes all ongoing reporting and disclosure obligations and costs. A DAF can be sponsored by your favorite church/temple/school/organization, or virtually any local community foundations.

Stretch Tax-Favored Retirement Funds with a GLI

This isn’t a Tax Reform item, but the uncertain tax landscape and recent market volatility make guaranteed lifetime income (“GLI”) options an option whose time may have come. A GLI, if available in your plan, turns a 401(k) or 403(b) into an old-fashioned pension plan, with income for life and market/mortality risk on the payer, rather than the retiree.

For more information, contact Kimberly I. McCarthy, Esq. VP, Chief Wealth Management Tax & Benefits Officer, at kimccarthy@washtrust.com.


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By Washington Trust / January 23, 2019
Washington Trust in the News

From Providence Business News

Five Questions With: Joseph Confessore

By Scott Blake - January 22,2019

Joseph Confessore is leading The Washington Trust Company’s new Private Clients Group, designed to provide a spectrum of banking and investment services for business owners, executives and “high net worth” individuals and their families and organizations. He also will continue to serve as a team leader in the bank’s Commercial and Institutional Banking Group.

Since joining the Westerly-based bank in 2003, Confessore has been instrumental in middle-market commercial and institutional lending in southern New England. Prior to joining Washington Trust, he spent several years in regional and national financial institutions in roles supporting business owners and their companies from asset-based lending and private banking platforms.

Confessore has a bachelor’s degree from the University of Rhode Island and a master’s degree in business administration from Providence College. He continues to serve on the College of Business Advisory Council and as a trustee of the University of Rhode Island Foundation. He is also a board member of the Rhode Island Industrial Facilities Corp.

Click here to read the entire Q&A at Providence Business News


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By Washington Trust / January 7, 2019

Confessore Leads Team Which Includes Former RISCPA President Bob Mancini

January 7, 2019

Westerly, RI - The Washington Trust Company today announced a new private client initiative designed to provide personalized financial solutions for business owners, executives, and high net worth individuals, their families and their organizations. Washington Trust’s Private Clients Group will be led by Senior Vice President, Joseph Confessore, who will continue to serve as a Team Leader in the Bank’s Commercial and Institutional Banking Group. Robert A. Mancini, former President of the Rhode Island Society of Certified Public Accountants, has joined Washington Trust’s Private Clients Group as a Vice President and Senior Private Client Advisor. Washington Trust offers a wide range of financial services, including commercial, mortgage and personal banking, as well as wealth management, trust, and estate planning services. The Private Clients Group will serve as a single source of these services, providing tailored solutions with a holistic client experience.

“Washington Trust has been helping generations of businesses and families manage their wealth and achieve their life goals for more than 200 years,” said Mark K.W. Gim, Washington Trust President and Chief Operating Officer. “The Private Clients Group allows us to provide a comprehensive suite of services with specialized focus on individual client needs. Joe and Bob are experienced, trusted advisors who are well-respected in the Rhode Island professional community.”

Confessore joined Washington Trust in 2003 and has been instrumental in the Bank’s middle market commercial and institutional lending throughout Southern New England. Prior to joining Washington Trust, he spent several years serving in regional and national financial institutions in roles supporting business owners and their companies from asset based lending and private banking platforms. Confessore has a bachelor's degree from the University of Rhode Island and an M.B.A. from Providence College. He is past President of the University of Rhode Island Alumni Association and continues to serve on the College of Business Advisory Council and as a Trustee of the URI Foundation. A Rhode Island resident, Confessore is an alumnus of Leadership Rhode Island and a board member of the RI Industrial Facilities Corporation.

Mancini joins Washington Trust from the Rhode Island Society of CPA’s (RISCPA), where he oversaw the operations of the more than 2,400-member society as President since 2006. As President, he was responsible for growing the Society’s membership by nearly 40% and was recognized for advancing business development and partnerships bolstering RISCPA’s mission to support a strong business environment in the State. Prior to his tenure with RISCPA, Mancini served in various wealth management, commercial lending, private and retail banking roles across New England for more than two decades. He graduated from Providence College with a bachelor's degree in business administration and holds a certificate from The New England School of Banking at Williams College. Mancini is strongly committed to the community, currently serving as; and as a member of CCRI’s business advisory board; the United Way board; the Northern RI Chamber of Commerce board; the St. Elizabeth Community finance committee; the Public Finance Management board; the RI Foundation Professional Advisory Council; RI’s Health Services Council; AICPA’s UAA Committee and the RI Commodores.


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By Washington Trust / December 7, 2018

Uncertainty regarding the trajectories of both U.S. monetary policy and U.S./China trade negotiations continue to weigh on the U.S. and global financial markets. The S&P 500 price level has retreated towards a 52-week low while volatility has advanced towards a 52-week high, and the U.S. Treasury yield curve has moved closer to inversion1, a condition that has often been a predictor of a recession, although those recessions have typically followed the inversion by approximately two years. 

Aggressive rate hikes by the U.S. Federal Reserve and/or a failure of the Trump administration to amicably resolve the trade dispute with China could serve to exacerbate a forecasted 2019 slowdown in U.S. and Global GDP growth and corporate earnings, resulting in additional downward pressure on stock prices. The good news is that this is not our ‘base case’ for 2019. While acknowledging some recent softness in the housing and auto markets, we believe the U.S. economy overall remains on solid footing. The U.S. economy continues to produce a respectable amount of new jobs, wages are rising, capital spending is growing, and consumer and business confidence levels remain at multi-year highs. Corporate earnings are quite strong as well, and although we do anticipate a deceleration in growth, current Wall Street consensus estimates call for approximately 10% S&P 500 earnings growth in 2019. Importantly, inflation pressures remain relatively benign, which may limit the need for aggressive Fed rate hikes. 

Although we believe the economy will avoid a recession in 2019, we recognize that the current economic business cycle is likely closer to the end than the beginning or middle. This viewpoint, combined with expectations for slowing corporate earnings, higher levels of market volatility, and a now more attractive interest rate environment, results in our having a more cautious outlook for equities. Importantly, with a S&P 500 price/earnings ratio of approximately 15-16 times 2019 earnings estimates, we view stocks as reasonably valued especially within the context of the current low inflationary environment. 

As always, we encourage you to contact your Washington Trust Wealth Management portfolio manager should you have any questions or concerns regarding your portfolio or financial market conditions.

1-Yield curve inversion refers to a condition in the U.S. Treasury market in which yields on short-term maturities are higher than those on long-term maturities.


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By AJ Monaco / October 30, 2018

As seen on The Rhode Show

Millennials are the generation born between 1981 and 1996 - they came of age during the Great Recession and are dealing with several unique financial problems, including a much higher student loan debt burden and the need to save much more than their parents for life milestones (e.g. having children, buying a home, retirement). As a result, millennials born in the ‘80s are at risk of becoming a "lost generation" for wealth accumulation. Here’s why…

  • Student loan debt is one of the most notorious expenses burdening millennials and college tuition has more than doubled since the 1980's 
  • Millennials buying their first home today will pay 39% more than baby boomers who bought their first home in the 1980's.* In fact, the value of homes has increased by 73% since the 1960's, when adjusted for inflation.  
  • Rents increased by 46% from the 1960's to 2000 when adjusted for inflation.* In 1960, the median gross rent was $71, or $588 in today's dollars. By 2000, that number had risen to $602, or $866 in today's dollars. 
  • Due to inflation, in 40 years (around the time millennials will be retiring or in retirement), $1 million in savings would have the same spending power as $306,000 today 
  • As of 2016, millennials had wealth levels 34% below where they would most likely have been if the financial crisis hadn't occurred, making them the slowest group to recover from the Great Recession.** They've been struggling to catch up ever since.

How can millennials address the issues outlined above and build wealth? Here are a few easy steps…

  • Utilize a budget - Only 41 percent of Americans use a budget. Young adults on their own for the first time may bristle at the idea they must limit spending, but your budget can become a way to ensure money is spent on the priorities that matter most. There are many free resources out there – including apps and online tools – to assist with creating (and sticking to!) a budget. 
  • Start saving for retirement now - Expenses such as student loan payments or saving for a down payment on a house can make it hard to prioritize saving for a retirement that is decades away. However, waiting to begin saving for the future is one of the biggest mistakes you can make, because of the power of tax-free growth and compounding. Think of saving for retirement as paying yourself first. Take advantage of opportunities offered through your employer: many employers will match contributions which is essentially free money. And if you have access to a Roth 401(K) plan, this can be ideal because the contributions and earnings grow tax-free and can be taken and used in retirement tax-free! 
  • Understand taxes - It is important to understand implications of taxes so as not to miss out on deductions for student loan payments or the lifetime learning credit that can be used by those in graduate school. There may be confusion about having to claim money earned through side jobs such as driving for Uber or reselling goods on Amazon. However, generally if you earn over $600 per year from any side gig, the company paying you (e.g. Uber) must report it on forms to the IRS, so you need to report it as well, or face penalties.  
  • Remain consistent - Failing to follow a single system can leave your finances disorganized and prone to other mistakes.

Sources: * Student Loan Hero ** The Federal Reserve Bank of St. Louis


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By Matthew S. Blank, CFA® / October 22, 2018

Market Outlook:

  • High teens earnings growth for the S&P 500 Index in 2018 appears achievable as tax reform boosts after tax earnings3
  • Corporate tax reform to add approximately 7% to the S&P 500 Index earnings3
  • U.S. equity market valuation challenging on 2018 earnings, but analysts are optimistic on 2019 earnings outlook
  • Expect slightly negative 2018 fixed income returns as interest rates and bond yields continue to rise
  • Corporate bonds appear richly valued as spreads remain narrow; Treasuries, Government Agencies, and CD’s attractive
  • Short to intermediate muni bonds make sense for high tax-bracket investors while TIPS have some appeal as an inflation hedge
  • Foreign central banks likely to curtail quantitative easing in latter part of year, removing some liquidity
  • Return to normal volatility as rates rise and liquidity reduced (end of financial repression)
  • Dollar rallies after a weak 2017 as the Fed tightens and European recovery discounted

Downside Risks:

  • U.S. political risk, especially concerning trade policy
  • Geopolitical risk is high around the globe; Europe, Middle East & East Asia all vulnerable
  • Wage gains accelerate toward 4% (versus current 2.9%) resulting in an even faster pace of rate hikes
  • Synchronization of monetary policy; foreign central banks become more restrictive
  • Return of market volatility harms consumer confidence and consumption slows
  • Increasing supply of U.S. Treasury debt is disruptive to the fixed income market

Upside risks:

  • Notable improvement in productivity allows for non-inflationary wage growth and higher profit margins
  • Greater political stability in Europe
  • Steadier exchange rates and commodity prices
  • Trade issues recede on better growth

Fall 2018 Markets & Economy

Despite worries over rising interest rates, a more hawkish Federal Reserve, and continuing trade friction, we are hard pressed to find signs of an imminent economic slowdown in the U.S. GDP advanced at a stellar 4.2% pace in the second quarter, the best quarterly gain since 20141. Eliminating a 1% boost to Q2 GDP from a surge in exports to avoid the imposition of Chinese tariffs, the economy seems likely to keep chugging along at a robust 3% clip in the back half of this year. It appears, the 2018 full year growth may even slightly exceed our projected 2.5% - 3.0% range3.

The big economic story this year is the continued strength in the labor market. The unemployment rate of 3.7% is near a 50-year low as are jobless claims, which is a leading indicator of future job gains2. The economy added an average of 190,000 jobs per month during the third quarter despite a hurricane-weakened month of September2. It appears that the number of new hires in 2018 will easily surpass 2.2 million versus our initial 1.8 million forecast3. To put it in perspective, there are only about 100,000 new entrants into the labor force per month. Given tightness in the labor market, wage growth, while still moderate, is at its best level since the recession a decade ago.

With jobs being plentiful, it is little wonder that consumer confidence surged during August and September to a cycle high and near an all-time record. The U.S. economy is consumer driven and consumer spending jumped sharply in the second quarter, increasing 3.8%, and that pace does not appear to have ebbed much in Q31. With incomes rising and confidence high, our assumption is for continued strength in consumption in the current quarter.

Business investment or capital spending has also been a bright spot this year. Capital expenditures surged over 10% (annualized) in the first half of the year1. For the 12-months ended August 31st, industrial production rose 4.9%5. Of particular note is the double digit increase in mining output, which includes energy production. Given the recent upswing in oil prices, capital spending in this key sector is likely to increase at an even stronger pace. Furthermore, overall capacity utilization has increased by 1.7% to 78.1% in the past year5. With business confidence high, profitability surging, and labor increasingly more expensive, strength in cap-ex should persist.

Residential investment, however, has been a disappointment in 2018 with housing starts erratic and no clear trend in building permits. Our assumption was that persistent underbuilding and favorable demographics supported by strong employment would keep housing activity robust. Two related factors seem to have conspired against this optimistic scenario. The sharp recovery in home prices has far outstripped wage gains. With mortgage rates on the rise, affordability has diminished. Tight supply is also pushing prices higher and a shortage of construction workers means there is no quick fix to this inventory shortage. On the bright side, strong underlying demand should help support the market, and high prices should bring more inventory on the market. Another housing bubble does not appear to be in the works.

While higher interest rates have hampered the more interest sensitive sectors of the economy such as housing and autos; financial conditions, more broadly, remain supportive of economic growth. Although the Federal Reserve has consistently hiked rates by 0.25% each quarter, the Federal Funds rate at 2.25% remains just below the rate of inflation5. In other words, the interest rate adjusted for inflation is still below zero. Credit spreads, despite widening somewhat off of cycle lows during recent market turbulence, are no higher than at the start of the year, indicating credit remains readily available. This relative stability in credit markets is reassuring.

Longer-term bond yields have moved higher as well in response to a strengthening economy. The yield on the 10-year Treasury ended the third quarter 2018 at 3.05% after starting the year at 2.43%3. The yield currently sits at 3.15% and briefly touched 3.25%3. This is very much in line with our forecast for a 10-year yield in the range of 3.0% - 3.25% at year-end 2018. The economy seems to be tolerating the rise in rates well. The Federal Reserve will continue on a path towards interest rate normalization and, with inflation hovering just above the Fed target of 2%, appears to be managing the process well with no need to accelerate its pace5.

While we have not formalized our economic outlook for 2019, we acknowledge that there are a number of factors that may lead to a slowing rate of growth by the second half of 2019. The most obvious is that 2018 growth benefited from a large amount of fiscal stimulus. This is unlikely to recur as it would literally take an act of Congress. Higher interest rates will also tend to crimp growth at the margin, although, as we alluded earlier, the impact is unlikely to be severe3.

A shortage of workers is also becoming a concern; job creation cannot perpetually exceed growth in the labor force as it has for the past eight years. Finally, the impact of widespread tariffs is difficult to assess as their imposition is uncertain. Our conclusion is that the costs would outweigh the benefits especially in an economy at full employment. Our hope is that a more targeted approach is adopted in resolving our trade disputes. Despite these issues, the economy will potentially conclude 2018 with considerable momentum. While growth is likely to ease back in 2019 from the current 3% pace, another year of solid growth still appears to be a likely outcome3.

Sources: (1) Bureau of Economic Analysis (BEA); (2) U.S. Bureau of Labor Statistics; (3) Washington Trust Wealth Management; (4) Bloomberg; (5) Federal Reserve Board
The views expressed here are those of Washington Trust Wealth Management and are subject to change based on market and other conditions. Investment recommendations and opinions expressed in these reports may change without prior notice. All material has been obtained from sources believed to be reliable but its accuracy is not guaranteed. Investing entails risk, including the possible loss of principal. Stock markets and investments in individual stocks are volatile and can decline significantly in response to issuer, market, economic, political, regulatory, geopolitical, and other conditions. Investments in foreign markets through issuers or currencies can involve greater risk and volatility than U.S. investments because of adverse market, economic, political, regulatory, geopolitical, or other conditions. Emerging markets can have less market structure, depth, and regulatory oversight and greater political, social, and economic instability than developed markets. Fixed Income investments, including floating rate bonds, involve risks such as interest rate risk, credit risk and market risk, including the possible loss of principal. Interest rate risk is the risk that interest rates will rise, causing bond prices to fall. Past performance does not guarantee future results. The S&P 500 Index is an unmanaged index and is widely regarded as the standard for measuring large-cap U.S. stock-market performance. In addition, the S&P 500 Index cannot be invested in directly and does not reflect any fees, expenses or sales charges. Further, such index includes 400 industrial firms, 40 financial stocks, 40 utilities and 20 transportation stocks. The information we provide does not constitute investment or tax advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell any security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. Please consult with a financial counselor, attorney or tax professional regarding your specific investment, legal or tax situation.


The opinions expressed in this blog are those of the author and may not reflect those of Washington Trust Wealth Management. The information in this report has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Any opinions expressed herein are subject to change at any time without notice. Any person relying upon this information shall be solely responsible for the consequences of such reliance. Performance is historical and does not guarantee future results.

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