Charles Schwab STANDARD PPT 2010 Template · Charles Schwab & Co., Inc. March, ... US...
Transcript of Charles Schwab STANDARD PPT 2010 Template · Charles Schwab & Co., Inc. March, ... US...
Market Snapshot
Liz Ann Sonders Senior Vice President Chief Investment Strategist Charles Schwab & Co., Inc. March, 2015
As of 1/15. Dotted lines represent projections (2/15-12/16). Source: Bank of Japan (BoJ), Bloomberg, European Central Bank (ECB), FactSet, Federal Reserve. 1
80
130
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230
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330
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430
480
0.5
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1.5
2.0
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2008 2010 2012 2014 2016
BoJ
(¥, t
rillio
ns)
Fed
($, t
rillio
ns) &
ECB
(€, t
rillio
ns)
Fed Monetary Base ECB Monetary Base BoJ Monetary Base
Global central banks’ massive QE programs
As of 1/15. QE=quantitative easing. QE3=1/13-10/14. QE2=10/10-6/11. ECB QE=3/15-9/16. Source: Bank of Japan (BoJ), Bloomberg, European Central Bank (ECB), FactSet, Federal Reserve, GavekalDragonomics, International Monetary Fund (IMF). 2
Divergences in QEs’ sizes are notable
Fed QE3Fed QE2
BoJ 2013
BoJ 2014
ECB QE
0.0
0.5
1.0
1.5
2.0
2.5
3.0Ratios of QE to Bond Issuance
FedECB
BoJ
0
20
40
60
80
1002016 Projected Monetary Base as % of Nominal GDP
As of 2/27/15. The Citigroup Economic Surprise Index measures the amount that economic activity surprised or disappointed relative to analyst expectations. It’s defined as weighted historical standard deviations of data surprises (actual releases vs Bloomberg survey median). A positive reading of the Economic Surprise Index suggests that economic releases have on balance beating consensus. The index is calculated daily in a rolling three-month window. Source: FactSet. 3
Global economic surprises tilting toward non-US
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-75
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-25
0
25
50
75
Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15Citig
roup
Eco
nom
ic Su
rpris
e In
dex
US Eurozone China Japan
(0215-1604)
US GDP slows down … temporarily?
As of 4Q14. *Represents contribution to percent change in real GDP. Numbers may not add up to 100% due to rounding. Source: Bureau of Economic Analysis, FactSet.
% of real GDP
2Q14 annualized
Q/Q % change
3Q14 annualized
Q/Q % change
4Q14 annualized
Q/Q % change
Consumer spending 68.2% 2.5% 3.2% 4.2%
Government spending 17.8% 1.7% 4.4% (1.8%)
Federal: 6.9% (0.9%) 9.9% (7.5%)
State/local: 10.9% 3.4% 1.1% 2.0%
Net exports of goods & services (2.9%) (0.3)* 0.8* (1.2)*
Exports: 13.0% 11.1% 4.5% 3.2%
Imports: (15.9%) 11.3% (0.9%) 10.1%
Fixed investment 16.4% 9.5% 7.7% 4.5%
Nonresidential: 13.3% 9.7% 8.9% 4.8%
Residential: 3.1% 8.8% 3.2% 3.4%
Change in private inventories -- 1.4* 0.0* 0.1*
Real GDP 4.6% 5.0% 2.2%
4
2.3% (“new normal”) = average real GDP since June 2009 recession end
3.2% (“old normal”) = average private sector real GDP since June 2009 recession end
(0215-1604)
Closer to “escape velocity” than recession in US
*As of 3/2/15. Green means indicator is above “escape velocity” level. Lighter green means indicator is getting close to “escape velocity” level. ISM=Institute for Supply Management. Source: Ned Davis Research (NDR), Inc. Further distribution prohibited without prior permission. Copyright 2015(c) Ned Davis Research, Inc. All rights reserved. 5
Indicator
“Escape Velocity”
level
Key recession
level
NDR Recession Probability Model 5 50
Breadth of Philly Fed State Leading Indexes 95 52
NDR Economic Timing Model 17 0
NDR Composite Leading Model 3.4% -2.6%
National Financial Conditions Index -0.7 0.9
Initial unemployment claims (4-week average) 350,000 500,000
Conference Board’s Consumer Confidence Index 98.2 63.2
Conference Board’s Business Confidence Index 61 43
ISM Manufacturing Index 55.0 48.0
ISM Non-Manufacturing Index 55.2 51.4
Escape velocity refers to economic growth returning to potential after a recession, and activity is self-sustaining, i.e., it no longer needs the support of fiscal/monetary accommodation
Current
level
0.3
98
20
3.3%
-0.7
294,500
96.4
60
52.9
56.7
(0215-1604)
Inflation rates converging to sub-target?
As of 1/15. US Inflation=Consumer Price Index (CPI). Eurozone Inflation= Eurostat Eurozone Core Monetary Union Index of Consumer Prices. Japan Inflation=Consumer Price Index (CPI). Source: FactSet. 6
-4
-2
0
2
4
6
2008 2009 2010 2011 2012 2013 2014 2015
y/y %
cha
nge
US Inflation Japan InflationEurozone Inflation 2% Target Inflation Rate
Inflation risk low while velocity remains low
As of 2/15. Source: FactSet, Federal Reserve.
But “velocity” of money remains depressed
7
Fed flooded system
500
1,500
2,500
3,500
4,500
2007 2008 2009 2010 2011 2012 2013 2014 2015
Monetary Base ($, billions)
2
4
6
8
10
2007 2008 2009 2010 2011 2012 2013 2014 2015
M2 to Monetary Base Ratio
Low inflation generally bullish for US stocks
As of 2/20/15. The Reuters CRB (Commodity Research Bureau) Continuous Commodity Index (CCI) represents a geometric average of 17 commodity futures prices. DJIA=Dow Jones Industrial Average. Source: FactSet, Ned Davis Research, Inc. (Further distribution prohibited without prior permission. Copyright 2015(c) Ned Davis Research, Inc. All rights reserved.).
1/19/1968-2/20/2015
Reuters CCI index DJIA annualized gain
> 108.2 -0.9%
96-108.2 7.2%
< 96 15.5% We are here
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60
80
100
120
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180
200
1968 1973 1978 1983 1988 1993 1998 2003 2008 2013
3-w
eek
mov
ing
aver
age
Reuters CRB Continuous Commodity Index (y/y % change)
High Inflationary Pressures (Bearish)
Low Inflationary Pressures (Bullish)
9 As of 1/15. Source: FactSet, High Frequency Economics, Ltd.
Yellow-shaded areas indicate Fed tightening periods
Unemployment saying Fed’s too patient?
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-4
0
4-3
0
3
61985 1989 1993 1997 2001 2005 2009 2013
Unemployment Rate, 1Y % point difference (left-inverted scale)Fed Funds Target Rate, 1Y % point difference (right)
Lower US unemployment leads higher wages
10 As of 1/15. Source: Department of Labor, FactSet.
6.6
5.4 5.6
3
4
5
6
7
8
9
10
1986 1990 1994 1998 2002 2006 2010 2014
Unemployment Rate Average When Wages Bottomed
1
2
3
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5
1986 1990 1994 1998 2002 2006 2010 2014y/y %
chan
ge, 3
m mo
ving a
verag
e
Average Hourly Earnings of Production & Nonsupervisory Employees
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
2004 2006 2008 2010 2012 2014
Job Openings (JOLTS) - thousands
As of 12/14. Job Openings and Labor Turnover Survey (JOLTS) is a monthly survey of private nonfarm establishments and local government entities which provides information on the total number of job openings, hires, and separations (voluntary quits and layoffs/discharges). Source: Department of Labor, FactSet, ISI Group LLC.
US job openings have surged
11
Average nonfarm payroll employment change = +122k
Average nonfarm payroll employment
change = +267k
Long-term US unemployment has plunged
12 As of 1/15. Source: Department of Labor, FactSet.
0
1
2
3
4
5
1948 1958 1968 1978 1988 1998 2008
Long-Term Unemployment Rate (more than 27 weeks)Short-Term Unemployment Rate (less than 5 weeks)
Market’s expectations way under Fed’s
13 As of 2/15. FOMC=Federal Open Market Committee. Source: Bloomberg, Federal Reserve. 13
0.00.51.01.52.02.53.03.54.0
2014 2015 2016 2017
September 2014 Median FOMC Fed Funds Rate ProjectionsDecember 2014 Median FOMC Fed Funds Rate ProjectionsFed Funds Futures Rate (market expectations)
Volatility up across all asset classes
As of 2/27/15. Average Daily Move=50-day moving average of absolute daily change. bps=basis points. WTI=West Texas Intermediate. JPM Global FX Volatility Index is an index of global foreign-exchange volatility that tracks options on currencies of major and developing nations in percentage points. Source: Bespoke Investment Group (B.I.G.), Bloomberg. 14
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1.2
1.6
2.0
2011 2012 2013 2014 2015
Average Daily Move in S&P 500 (%)
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2.5
3.5
4.5
5.5
6.5
7.5
8.5
2011 2012 2013 2014 2015
Average Daily Move in 10-Year Treasury Yield (bps)
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1.0
1.5
2.0
2.5
3.0
3.5
2011 2012 2013 2014 2015
Average Daily Move in WTI Crude Oil Price (%)
0
5
10
15
20
25
30
1992 1995 1998 2001 2004 2007 2010 2013
JPM Global FX Volatility Index
Mexicanpeso crisis
Peak of euro crisis
Asian financial crisis/Russia default Global
financial crisis
Fed tightenings ahead of US bear markets and recessions
Date of 1st Fed rate hike
Bear market start
# months to bear market
Recession start
# months to recession start
4/15/1955 8/2/1956 16 8/1957 28
9/12/1958 12/12/1961 39 4/1960 19
7/17/1963 2/9/1966 31 n/a n/a
11/20/1967 11/29/1968 12 12/1969 25
1/15/1973 1/11/1973 0 11/1973 10
8/31/1977 n/a n/a 1/1980 29
9/26/1980 11/28/1980 2 7/1981 10
9/4/1987 8/28/1987 -1 7/1990 34
2/4/1994 n/a n/a n/a n/a
6/30/1999 3/24/2000 9 3/2001 21
6/30/2004 10/9/2007 40 12/2007 42
Mean 16 Mean 24
Median 12 Median 25
Bear market defined as 20+% drop in S&P 500. See last slide for definition of recession. Source: Ned Davis Research (NDR), Inc. (Further distribution prohibited without prior permission. Copyright 2015(c) Ned Davis Research, Inc. All rights reserved.).
Big lag from 1st hike to trouble historically
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US stocks tend to rally into/after initial rate hike
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98
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110
112
-6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6Months Prior | Months Post
S&P 500 Around Starts of Fed Tightening Cycles
Average of 13 cases since 1928
Start of Tightening Cycle
1928-2014. Source: Ned Davis Research (NDR), Inc. (Further distribution prohibited without prior permission. Copyright 2015 (c) Ned Davis Research, Inc. All rights reserved.)
Economic & market performance during rising interest rate periods (based on Fed tightening cycles)
% Gain per annum
Start date Fed rate End date Fed rate S&P 500
total return Coincident
index Nonfarm payrolls
4/30/1955 1.75% 7/31/1957 3.00% 15.1% 3.0% 2.5%
9/30/1958 2.00% 8/31/1959 3.50% 24.8% 13.8% 3.9%
7/31/1963 3.50% 11/30/1965 4.00% 16.2% 5.4% 3.8%
11/30/1967 4.50% 3/31/1969 5.50% 9.2% 4.4% 3.6%
1/31/1973 5.00% 3/31/1974 7.50% -13.9% 2.2% 3.0%
8/31/1977 5.75% 1/31/1980 12.00% 12.6% 3.5% 3.8%
9/30/1980 11.00% 4/30/1981 13.00% 15.5% 2.7% 2.1%
9/30/1987 6.00% 1/31/1989 6.50% -2.4% 4.0% 3.3%
2/28/1994 3.25% 1/31/1995 5.50% 3.6% 4.6% 3.6%
6/30/1999 5.00% 4/30/2000 6.00% 8.3% 4.2% 2.6%
6/30/2004 1.25% 5/31/2006 5.00% 7.6% 2.6% 1.7%
Median 9.2% 4.0% 3.3%
Mean 8.8% 4.6% 3.1%
Gain per annum over entire history 11.3% 2.5% 1.7%
Tightening cycle defined as at lest 3 consecutive rate increases without an intervening easing cycle. Source: Ned Davis Research (NDR), Inc. (Further distribution prohibited without prior permission. Copyright 2015(c) Ned Davis Research, Inc. All rights reserved.).
Longer-term US performance during rising rates
17
Higher US rates more a positive than negative
As of 1/15. Demand Deposits are funds held in an account from which deposited funds can be withdrawn at any time without any advance notice to the depository institution. Source: Bureau of Economic Analysis, Cornerstone Macro, FactSet, Federal Reserve.
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200
400
600
800
1,000
1,200
1990 1995 2000 2005 2010 2015
$, bil
lions
Demand Deposits at Commercial Banks
0
400
800
1,200
1,600
1990 1995 2000 2005 2010 2015
$, bil
lions
Household Interest Income Household Interest Expense
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. We believe the information obtained from third-party sources to be reliable, but neither Schwab nor its affiliates guarantee its accuracy, timeliness, or completeness. The views, opinions and estimates herein are as of the date of the material and are subject to change without notice at any time in reaction to shifting market conditions. Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance.
Disclosures
19 ©2015 Charles Schwab & Co., Inc. All rights reserved. Member SIPC
Indexes are unmanaged, do not incur management fees, costs and expenses (or "transaction fees or other related expenses"), and cannot be invested in directly. The Breadth of Philly Fed State Leading Indexes are produced monthly by the Federal Reserve Bank of Philadelphia, and designed to predict the 6-month growth rate of each state's coincident index. The components of the leading indexes are: state coincident indexes, state-level building permits, state initial unemployment insurance claims, delivery times from the ISM manufacturing survey, and the interest rate spread between the 10-year Treasury bond and the 3-month Treasury note. The Business Confidence Index is a quarterly survey by the Conference Board of approximately 100 CEOs in a wide variety of industries, details Chief Executives' attitudes and expectations regarding the overall state of the economy as well as their own industry. The Chicago Fed's National Financial Conditions Index (NFCI) provides a weekly view of U.S. financial conditions in money markets, debt and equity markets, and the traditional and "shadow" banking systems.
Index definitions
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Indexes are unmanaged, do not incur management fees, costs and expenses (or "transaction fees or other related expenses"), and cannot be invested in directly. The Conference Board's Coincident Economic Index (CEI) is a composite average of four individual economic indicators (employees on nonagricultural payrolls, personal income less transfer payments, industrial production, and manufacturing and trade sales) designed to capture turning points in aggregate economic activity better than any individual component. The Consumer Confidence Index is a survey by the Conference Board that measures how optimistic or pessimistic consumers are with respect to the economy in the near future. The Institute for Supply Management (ISM) Manufacturing Index is an index based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production inventories, new orders and supplier deliveries. The Institute for Supply Management (ISM) Non-manufacturing Index is an index based on surveys of more than 400 non-manufacturing firms by the Institute of Supply Management. The ISM Non-manufacturing Index monitors employment, production inventories, new orders and supplier deliveries.
Index definitions
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Indexes are unmanaged, do not incur management fees, costs and expenses (or "transaction fees or other related expenses"), and cannot be invested in directly. The S&P 500 Index is a capitalization-weighted index of 500 stocks from a broad range of industries. The component stocks are weighted according to the total market value of their outstanding shares. (0315-1739)
Index definitions
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