Economic bullets tabs
- 1. Economic and Market Outlook Alliance Benefit Group Consultants 3200 South 700 East Salt Lake City, UT 84106 801-486-5069 www.consultabg.com 2nd Quarter 2014
- 2. Economic and Market Outlook 2nd Quarter 2014 Recap of Economic Environment This section will recap economic indicators including: Gross Domestic Product (GDP) Housing Oil Prices Employment Federal Funds Rate Corporate Profits and Consumer Finances
- 3. Economic Growth and the Composition of GDP The Great Recession During this contraction period the US Economy experienced $639 billion of output loss. Recovery Since 3rd Quarter 2009, quarterly GDP has turned positive and the U.S. Economy has recovered $1,585 billion. Growth Output recovery indicates that we are experiencing slow economic expansion. GDP growth, although positive, is still below average. Components of GDP
- 4. Residential and Commercial Real Estate Recovery Prices Since 2012 both Commercial and Residential real estate prices have increased significantly, a lot of this stems from the decline in inventory. Vacancy Rates The chart on the bottom right shows that vacancy rates have been on the decline which is good for the prospects of new construction. Affordability Housing affordability is still measuring below average due in part to low interest rates coupled with home prices that are still well below their 2006 peak prices
- 5. Oil and Gas Foreign Oil Supplies Geopolitical concerns in the Middle East and Northern Africa can have a major impact on global oil supplies. U.S. Oil Independence The chart on the bottom right highlights a decreasing dependency on foreign oil imports for the U.S. due to increased domestic production and forecasts this trend to continue.
- 6. Employment Decline in Unemployment Unemployment dropped significantly from the peak of the recession in 2009. While the unemployment rate has dropped to its current level of 6.7% it is still above the 50 year average of 6.1%. Job Loss and Creation During the recession 8.8 million private payroll jobs were lost and approx. 8.7 million have been gained since then. Labor Force During this same time period however the labor force has grown by roughly 1,050,000 per year requiring approximately 6,500,000 additional jobs.
- 7. Federal Funds Rate Low Federal Funds Rate In response to a slowing economy, tough housing conditions, and tighter credit, the Federal Reserve cut the federal funds rate from 5.25% to a range of 0.00-0.25% from Sept 2007 thru Dec 2008. Inflation Inflation currently sits at about 1.6%. Down from 1.7% last quarter. Projections The Federal Reserve project a steady increase of the federal funds rate in 2015 Decreasing unemployment and slightly rising inflation.
- 8. Corporate and Consumer Finances Operating Earnings For the S&P 500 operating earnings are at all-time highs despite difficult economic conditions. EPS increased from $26.92 to $28.24 over the last quarter Corporations are financially stronger The S&P 500 total debt to total equity ratio is well below their historical average. Consumers are financially stronger The average household has deleveraged significantly since 2007, with the bulk of consumer liabilities in home mortgages.
- 9. Economic and Market Outlook 3Q 2013 Review of Financial Markets This section will review market indicators including: Equity Returns Cash Accounts Fixed Income Returns Asset Class Returns Stock Market Since 1900
- 10. U.S. Equity Returns All Major U.S. Equity Indices were positive for 1st QTR 2014. Current P/E vs. 20-year Average The Large Growth category looks to currently be trading at a deeper discount relative to its own history. The Small Cap Value category are more expensive than their historical average
- 11. Cash Returns on Cash Low interest rates are creating income issues for those in retirement as $100,000 in a 6 month CD is only generating about $390 a year, this is down from $450 in 2012. Cautious Investors Despite low interest rates and a rising stock market the amount of cash being held continues to increase.
- 12. Fixed Income Returns Diversification Performance between income sectors also varies and diversification plays a key role in minimizing risk. Averaging 5.8% annual returns over the past 10 years. Low 2013 Returns The High Yield Bond sector was 1 of only 2 fixed income categories to post a positive return in 2013, and they posted strong 1st qtr. returns as well. 1st qtr. 2014 Emerging market debt led the way with a +3.5% return.
- 13. Asset Class Returns Diversified Asset Class Returns An annually rebalanced asset allocation portfolio across all major asset classes can help reduce volatility. Average annual returns of 7.2%.
- 14. Stock Market Since 1900 Equity Market Super Cycle Are we in a cycle of stagnation, poised for a long period of growth?
- 15. Historical Returns by Holding Period A diversified portfolio Significantly reduced the possible downside of stocks and bonds over rolling 5yr and 10yr periods. Increased the possible upside of bonds over the rolling 10yr and 20yr periods.
- 16. Maximizing the Power of Diversification Diversification can reduce volatility and enhance returns.
- 19. Definitions, Risk and Disclosure