march 15, 2018 2018 sgv economic forecast summit and...policy uncertainty is off its highs...
TRANSCRIPT
March 15, 2018
2018 SGV Economic Forecast SummitGlobal & National Forecast
Christopher Ainsworth, Managing Director
Disclaimer
The CIO “Bulls Eye”
An succinct and objective perspective on new developments during the quarter and key ongoing macro drivers.
Positive Factors
Broad global synchronized recovery drives earnings growth
Monetary policy worldwide remains accommodative
Healthy consumer and job growth drives U.S. economy
Growth of European economy reduces political risk
Recent Developments
Republican tax plan signed into law, handing President Trump a major legislative achievement
Jerome Powell chosen as next Federal Reserve Chairman, seen as a continuation of accommodative monetary policy
U.K. and the European Union agree to separation financial bill, setting up talks for future trade relationship
Republican electoral defeats potentially signal shift in political winds
Quantitative Easing Roll Off (QERO) begins in U.S. while global central banks tiptoe towards tightening monetary policy
Angela Merkel, recently elected Chancellor of Germany, finds it difficult to form a government
North Korea, categorized as state-sponsor of terrorism, fires another ICBM*
Bitcoin futures begin trading on the Chicago Board Options Exchange and Chicago Mercantile Exchange
Geopolitical and trade tensions (protectionism)
China’s deleveraging campaign and economic transition
QERO and FOMC** composition
Italian elections (March 4th) / Identity Politics
On Watch
Source: Chief Investment Office. Data as of December 31, 2017. *Intercontinental ballistic missile; **Federal Open Market Committee
1
2018 Outlook: The Next Great Odyssey
We see 2018 as a year of continued transition.
Capital investment via repatriation
Millennial housing cycle
Emerging market middle-class consumers
Second wave of an innovation cycle
Global infrastructure redevelopment
Our outlook of expected dynamics to drive the new upcycle can be seen through a 5 by 5 prism
Central banks to normalize large balance sheets
Tapering of central bank bond-buying programs
A nudge higher in interest rates
Trillions of dollars to fade to positive rate structure
Debt servicing costs to remain at acceptable levels, as growth
hovers at or above trend levels
Expected growth sources New demographic & inflation dynamics expected to allow…
The progression from the prolonged period of secular stagnation and extraordinarily low interest rates to rising
economic growth, enhanced by secular forces, and rising interest rates may generate episodes of concern, which could
eventually set the stage for a new upcycle.
Source: GWIM Investment Strategy Committee (ISC) as of December, 2017.
2
U.S. GDP Quarterly % Change
3
Manufacturing Survey
Source: www.philadelphiafed.org/manufacturing-BOS Source: Research.stlouisfed.org
Current General Business Conditions
4
Leading Economic Indicator
5
Tight Labor Market
Unemployment rate has declined, which may pressure wage growth
A tight labor market supports faster wage growth.
*Broader measure of unemployment: Total unemployed plus all marginally attached workers, plus total employed part time for economic reasons as a percent of thecivilian labor force, plus all marginally attached workers. Source: (Left) Bureau of Labor Statistics/ Haver Analytics. As of December 15, 2017. (Right) Federal Reserve Bankof Atlanta / Haver Analytics. As of January 3, 2018. Shaded are recessions.
Past performance is no guarantee of future results. Please refer to appendix for asset class disclosures and index definitions.
2.5
5.0
7.5
10.0
12.5
15.0
17.5
Pe
rce
nta
ge
(%
)
Broader Measure of Unemployment*, SA, %
Civilian Unemployment Rate: 16 yr +, SA, %
1
2
3
4
5
6
7
1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016
Pe
rce
nta
ge
(%
)
Wage Growth Tracker: Overall:
3-Mo Moving Avg of Median Wage Growth Non-Seasonally Adjusted, %
6
Inflation Expectations are SoftInflation running below policy target adds to the case for a cautious Fed tightening cycle. Core
inflation should return to trend over the medium term.
Market-based inflation expectations are still historically low… ...a mood increasingly reflected by consumers.
Source: (Left) Federal Reserve Board /Haver Analytics. As of January 3, 2018. (Right) University of Michigan /Haver Analytics. As of January 3, 2018.
Past performance is no guarantee of future results. Please refer to appendix for asset class disclosures and index definitions.
0.5
1.0
1.5
2.0
2.5
3.0
Pe
rce
nta
ge
(%
)
Calculated 5-Year Forward Inflation Rate EOP, %
1.50
2.25
3.00
3.75
4.50
5.25
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Pe
rce
nta
ge
(%
)
12 Month Expectations: Change in Prices: Median Increase, %
7
Global Profit Outlook
Synchronized global earnings expansion is expected to continue.
Source: (Left) BofA Merrill Lynch Global Research. Data as of November 30, 2017. Source: (Right) FactSet consensus estimates. Data as of January 4, 2017.
Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.
Analyst earnings revisions are headed higher across most
regions.
Earnings growth has been synchronized across regions, a
trend expected by analysts to continue.
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2010 2011 2012 2013 2014 2015 2016 2017
# S
tock
Up
gra
de
d /
# D
ow
ng
rad
ed
USA Europe Japan Asia Pac ex-Japan
4.3
0.3
5.4
-0.2-3.1
-0.8
16.4
10.69.6
6.8
-6.9
-2.1
-11.1
-19.3
7.0
28.2
13.611.1
-30
-20
-10
0
10
20
30
40
2011 2012 2013 2014 2015 2016 2017E 2018E 2019E
Yo
Y,
(%)
Developed Markets
Emerging Markets
8
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
Countries growing above 2%
Countries growing below 0%Cycle high
Cycle low
Countries growing above 2% and below 0%
Share of all countries
Source: International Monetary Fund. Data as of 2017.
Past performance is no guarantee of future results. The economic and market forecasts presented are for informational purposes as of the date of this report. There can be no assurance that the forecasts will be achieved. Please refer to appendix for asset class proxies and index definitions.
Inside the Global Synchronized Economic PickupMore country economies have been growing at faster rates, while those contracting have fallen to a
cycle low.
9
Global Economic Policy Uncertainty
Policy uncertainty is off its highs post-French election, while financial stress remains benign.
Policy uncertainty has declined, financial stress is low
Source: (Left) www.policyuncertainty.com. Data as of December 14, 2017. (Right) Bloomberg and Chief Investment Office. Data as of December 14, 2017.
Notes: Global EPU calculated as the GDP-weighted average of monthly EPU index values for U.S., Canada, Brazil, Chile, UK, Germany, Italy, Spain, France, Netherlands, Russia, India, China, South Korea, Japan, Ireland, Sweden, and Australia, using GDP data from the International Monetary Fund (IMF) World Economic Outlook Database. National EPU index values are from www.PolicyUncertainty.com and Baker, Bloom and Davis (2016). Each national EPU Index is renormalized to a mean of 100 from 1997 to 2015 before calculating the Global EPU Index.Past performance is no guarantee of future results. fees or expenses. It is not possible to invest directly in an index.
Please refer to appendix for asset class proxies and index definitions.
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
2012 2013 2014 2015 2016 2017B
ofA
ML
GFS
I
BofA Merrill Lynch Global Financial Stress Index (GFSI)Levels greater/less than 0 indicate more/less financial market stress
0
50
100
150
200
250
300
350
Global Economic Policy Uncertainty Index (EPU)
Global EPU, Current Price GDP Weights
Global
Financial
Crisis
Eurozone Crises, U.S.
Fiscal Fights, China
Leadership TransitionEuropean
Immigration
Crisis
Brexit
Gulf War II9/11
Asian &
Russian
Financial
Crisis
(January 1997 to November 2017)
Using data for 17 countries that account for
2/3 of global GDP
U.S. Elections &
Political developments
in Brazil, China, France,
South Korea, and the
U.K.
10
Global Economy Improving
The synchronized global growth upturn that began last year continues and has broadened.
The Global Wave quantifies trends in global economic activity and is an
amalgamation of seven macroeconomic and market components.**
Global aggregate economic data continue to improve Global Wave suggests continued outperformance for equities
and cyclical rotation
*Organization for Economic Co-operation and Development. **Components of Global Wave: Global Industrial Confidence (Output), Global Consumer Confidence (Demand), GlobalCapacity Utilization (Investment), Global Unemployment Labor (Market), Global Producer Prices (Prices), Global Credit Spreads (Bond Market) and Global Earnings Revision Ratio(Equity Market). Source: (Left) OECD /Haver Analytics. As of December 2017. (Right) BofA Merrill Lynch Global Quantitative Strategy, MSCI, IBES, Bloomberg, OECD, IMF. As ofDecember 2017. Past performance is no guarantee of future results. There can be no assurance that the forecasts will be achieved. Economic or financial forecasts are inherentlylimited and should not be relied on as indicators of future investment performance. Please refer to appendix for asset class disclosures and index definitions.
2.5
3.0
3.5
4.0
4.5
5.0
5.5
11 12 13 14 15 16 17
GD
P (
Yo
Y %
Ch
an
ge
)
OECD & Major Six Non-Mem: Original Series:
Gross Domestic Product (Year/Year % Change)
China/EM Slowdown
Europe
Growing
Again
Dollar-Oil Shock
Bottom
11
CIO U.S. Recession IndicatorChanges in economic gauges we track are aggregated into the CIO U.S. Recession Indicator. At its current reading, the risk of recession in the U.S. appears to be currently low.
Source: GWIM Chief Investment Office, Bloomberg, National Bureau of Economic Research. *Logistic regression of six macroeconomic variables (initial claims, housing starts, industrial production, domestic vehicle sales, 10yr-3m yield curve, commercial bank loans and leases) against recessionary and non-recessionary periods since January 1970. The start of past recessions has generally been contemporaneous with increases in the indicator above 50%. Data as of November 2017.
Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.
Pro
ba
bili
ty (
%)
0
10
20
30
40
50
60
70
80
90
100
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Recession Recession Indicator*
Elevated recession risk >25% Extreme recession risk >50%
12
Tax Reform in a Global ContextTax reform aims to make American firms more competitive and spark a capital expenditure cycle.
This along with household tax cuts are ingredients for stimulating growth in the U.S.
Source: OECD. Data as of December 2017. The key on the right hand side of the chart classify the lines by country, while the top shows what the lines are. Neither
Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. Clients should consult their legal and/or tax advisors before
making any financial decisions. Past performance is no guarantee of future results. Please refer to appendix for asset class disclosures and index definitions.
0
5
10
15
20
25
30
35
40
45
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
U.S. (previous)France
Japan
U.S. (new)
GermanyCanada
Ireland
Headline national corporate tax rates, excluding regional or state levies (%)
U.K.
Corporate tax rates around the
world have been trending lower
for years. We believe tax reform
helps realign the U.S. with other
major economies.
We believe tax reform, along
with other pro-growth fiscal
and regulatory policies, should
strengthen U.S. firms’ standing
in the global economy.
13
Repatriation: Over $1 Trillion to Return to the U.S.?
S&P 500 companies potentially returning over one-trillion dollars may boost earnings per share by two to three dollars on share buybacks. Tech and Health Care may benefit the most.
Source: BofAML Global Research. Data on report published December 20, 2017. *For reference purposes only.
Past performance is no guarantee of future results. Indexes are unmanaged and do not take into account fees or expenses. It is not possible to invest directly in an index.
Earnings per share impact by sector from repatriated cash used for buybacks
Sect
or
0.0
0.1
0.1
0.6
0.7
0.8
0.9
1.0
1.8
2.1
5.0
0 1 2 3 4 5 6
Utilities
Real Estate
Telecom
Materials
Industrials
Energy
Discretionary
Staples
S&P 500
Health Care
Technology
Earnings per share impact (%)
Top 20 firms with overseas cash as a % of market cap*
CSCO Cisco Systems, Inc. 36
GILD Gilead Sciences, Inc. 33
NTAP NetApp, Inc. 33
QCOM QUALCOMM Incorporated 31
AMGN Amgen Inc. 30
ORCL Oracle Corporation 30
AAPL Apple Inc. 28
WDC Western Digital Corporation 22
NWS News Corporation Class B 21
STX Seagate Technology PLC 20
WAT Waters Corporation 20
MSFT Microsoft Corporation 20
XLNX Xilinx, Inc. 18
LRCX Lam Research Corporation 18
GE General Electric 18
RL Ralph Lauren Corporation Class A 17
CA CA, Inc. 17
CTXS Citrix Systems, Inc. 16
JNPR Juniper Networks, Inc. 15
VRSN VeriSign, Inc. 14
14
U.S.: Effective Corporate Tax Rates by Industry
Source: Credit Suisse, S&P Capital IQ/ClariFi, Compustat. Data as of 2016. Past performance is no guarantee of future results. The economic and market forecasts presented are for informational purposes as of the date of this report. There can be no assurance that the forecasts will be achieved. Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. Clients should consult their legal and/or tax advisors before making any financial decisions. Please refer to appendix for asset class disclosures and index definitions.
Energy
Pharma, Biotech & Life Sciences
Semiconductors & Equipment
Materials
Diversified Financials
Household & Personal Products
Software & Services
Health Care Equipment
Capital Goods
Automobiles & Components
Utilities
Media
Retailing
Telecommunication Services
0% 5% 10% 15% 20% 25% 30% 35% 40%
Decreasing
benefit from
lower statutory
rate
Small cap Russell 2000 corporate tax rates
Effective rate
Retail, Telecom, and Media companies may see the largest windfall from the recently passed
Republican tax plan.
Energy
Pharma, Biotech & Life Sciences
Semiconductors & Equipment
Software & Services
Household & Personal Products
Capital Goods
Automobiles & Components
Materials
Diversified Financials
Health Care Equipment
Utilities
Media
Telecommunication Services
Retailing
0% 5% 10% 15% 20% 25% 30% 35% 40%
Large cap Russell 1000 corporate tax rates
Effective rate
Decreasing
benefit from
lower statutory
rate
15
Buybacks Reach 2nd Highest Amount Since 2009
Corporate buybacks year-to-date, as of Feb. 6, in billions.
Source: Birinyi Associates16
U.S. Equity Fundamentals and ValuationsEquity valuations are full on an absolute basis, but more attractive versus fixed income. Earnings
growth may be key for further equity upside.
Source: (Both) BofA Merrill Lynch US Equity & US Quant Strategy. *Note: Normalized equity risk premium is the spread between normalized earnings per share (EPS) yield and the normalized risk-free rate (RFR). Normalized EPS is based on a log linear regression of S&P 500 operating EPS. The normalized RFR is the difference between 1) the average of the 30-year Treasury yield and the 5-year rolling average 10-year Treasury yield and 2) the 10-year TIPS spread and the 5-year rolling average CPI inflation rate. Data as of November30, 2017. (Right) Source: BofAML Global Research; Chief Investment Office. *The Chief Investment Office forecasts a S&P 500 2018 earnings per share (EPS) target range of $148–$158, which is depicted by the checkered box. E = Estimate. Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and indexdefinitions.
The normalized equity risk premium* usually undershoots
during bull markets
Earnings momentum for the S&P 500 is forecasted to carry into 2018
Note: Specified (E) is the consensus expectation, an average of analysts’ forecasts surveyed by First Call.
-200bp
0bp
200bp
400bp
600bp
800bp
1000bp
1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
Average (ex-Tech Bubble) =
363 basis points (bp)
Equity optimism
Equity fear
Tech Bubble
Financial crisis
Euro Crisis,
Fiscal Cliff
12.0
18.1 18.2
15.8
11.911.5
15.9
7.2
11.3 11.4 11.5
12.9
11.7 11.0
12.0
12.8
11
0
2
4
6
8
10
12
14
16
18
20
3Q17 4Q17E 1Q18E 2Q18E 3Q18E 4Q18E 2017E 2018E
Yo
Y,
(%)
BAML Estimate Actual unless specified (E)
Chief Investment Office*
18
Chief Investment Office Range*
17
Non-U.S. Equity Valuations
Across the world, equity valuations relative to the U.S. appear appealing.
Price-to-Book ratios versus the U.S. (MSCI indices)
0.55
0.54
0.58
0.44
0.680.67
0.71
0.54
0.93
0.800.82
0.67
0.50
0.55
0.61
0.44
0.4
0.5
0.6
0.7
0.8
0.9
1.0
0.5 1 1.5 2 2.5 3 3.5 4 4.5
Pri
ce-t
o-B
oo
k o
f re
gio
n v
ers
us
Pri
ce-t
o-B
oo
k o
f U
.S.
Current 15 year average 90th percentile 10th percentile
Source: Chief Investment Office, Bloomberg. Data as of December 29, 2017. Indexes are unmanaged and do not take into account fees or expenses. It is not possible to invest directly in an index. Please refer to appendix for asset class proxies and index definitions.
Emerging Markets Developed ex-U.S. Europe Japan
18
In Europe & Japan, Purchasing Power is KeyIn Japan, rising wages would increase consumer purchasing power and may be instrumental in defeating its population’s “deflationary mindset.” In Europe, purchasing power would lift low margins off the mat, potentially boosting upside.
Source: Chief Investment Office. MSCI, Bloomberg. (Left) Data as of November 30, 2017. (Right) Data as of December 29, 2017
Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.
The Japanese labor market is tight, which may result in rising
wages as employers struggle to fill vacancies. Higher inflation
may boost attractive equity valuations.
Profit margins are near a peak in the U.S. but sub-trend in
Europe with room to expand.
0
2
4
6
8
10
12
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
%
MSCI US Profit Margin (12m Trailing)
MSCI Europe Profit Margin (12m Trailing)
0.0
0.5
1.0
1.5
2.0
2.5
1964 1970 1976 1982 1988 1994 1999 2005 2011 2017
Ne
w J
ob
s to
Ap
plic
an
ts r
ati
o
19
Global Pickup May Favor Emerging Markets
Growth in global trade volumes have historically been a
tailwind for earnings in Asian Emerging Markets.
In our view, a rebound in global trade, along with the rise of the consumer are trends favoring
Emerging Markets, particularly in Asia.
A pickup in economic growth relative to Developed Markets suggests strength for Emerging Market equities
Note: MSCI DM represented by MSCI World Index
Source: Chief Investment Office. IMF. Bloomberg, MSCI. (Left) Data as of September 30, 2017. (Right) Data as of December 29, 2017.
Past performance is no guarantee of future results. Indexes are unmanaged and do not take into account fees or expenses. It is not possible to invest directly in an index. Please refer to appendix for asset class proxies and index definitions.
On a relative price basis, Emerging Markets appear to have plenty
of runway for appreciation if they lead global economic growth.
40
60
80
100
120
140
160
180
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
MSC
I E
M /
MSC
I D
M -
Ind
exe
d t
o 1
00
EM
GD
P m
inu
s D
M G
DP
(%
)
EM-DM Real GDP growth gap
MSCI EM / MSCI DM (rhs)
-20
-10
0
10
20
30
40
-80
-60
-40
-20
0
20
40
60
80
100
120
140
160
2001 2003 2005 2007 2009 2011 2013 2015 2017
Yo
Y, (
%)
Yo
Y, (
%)
EM Asia EPS growth
Global trade volume (rhs)
20
Fixed Income Market TrendsThe disconnect between Federal Reserve projections and market expectations is something to watch,
though it has narrowed. Negative policy rates continue to drive divergences in sovereign yields.
Ex-U.S. global sovereign yields remain close to zero
Source: Bloomberg, Chief Investment Office. Left chart: data as of December 31, 2017. Right chart: data as of December 31, 2017. The economic and market forecasts presented are for informational purposes as of the date of this report. There can be no assurances that the forecasts will be achieved.
Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.
In our view, the search for yield, the low supply of sovereign bond inventory, and the negative yield backdrop outside the U.S.,have all led to money flow into U.S. government yields pushing the curve down and long dated yields close to record levels. As central banks move toward policy to help lift the yield curve, we believe longer dated bond yields will creep higher.
Gap between Fed and market rate hike expectations has narrowed
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17
Yie
ld (
%) 10 Year Treasury
10 Year German Bund
10 Year Japanese Government Bond
1.00%
1.25%
1.50%
1.75%
2.00%
2.25%
2.50%
2.75%
3.00%
Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20
Pro
ject
ed
Fe
de
ral
Fun
ds
Ra
te
Market-implied rate path
Fed-implied rate path
21
There’s no Smoke From Credit Markets
Source: Bloomberg, Chief Investment Office. Data as of February 6, 2018.*The Option Adjusted Spread is the spread between a fixed income security and the risk-free rate of return, taking into account embedded options within the security.It is not possible to invest directly in an index. Past performance is no guarantee of future results.
High yield sold off moderately while investment grade moved
only slightly, but in the context of the rally, neither move was
outsized.
3.0
3.2
3.4
3.6
3.8
4.0
4.2
0.80
0.85
0.90
0.95
1.00
1.05
1.10
1.15
1.20
1.25
1-Feb-17 1-Apr-17 1-Jun-17 1-Aug-17 1-Oct-17 1-Dec-17 1-Feb-18
Op
tio
n A
dju
ste
d S
pre
ad
, (%
)
Op
tio
n A
dju
ste
d S
pre
ad
, (%
)
Investment Grade High Yield
2.0
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
3.0
31-Jan-17 31-Mar-17 31-May-17 31-Jul-17 30-Sep-17 30-Nov-17 31-Jan-18
Op
tio
n A
dju
ste
d S
pre
ad
, (%
)
Bloomberg Barclays EM USD Agg OAS index
Emerging Market U.S. Dollar-denominated debt has not
shown signs of stress during the equity sell-off.
*
(Proxy = Bloomberg Barclays US Aggregate
Corporate Average OAS)
22
The End of an Era – Quantitative Easing Roll-Off (QERO) Begins
QERO was officially announced at September’s FOMC meeting, designed to gradually reduce
monetary accommodation. The strategy was put into action in October.
… leading to ~10% effective reduction in QE per year, very manageable
Source for all charts: Federal Reserve, Bloomberg, U.S. Trust. Data as of September 22, 2017.
Past performance is no guarantee of future results. Please refer to appendix for asset class proxies and index definitions.
• QE added $3.7 trillion securities to the Fed’s balance sheet• QERO, however, is only forecasted to reduce the Fed’s
securities holdings by 1/3 of that over three years
QE versus Normalization: QERO flows are very reasonable
relative to QE flows …
(150)
(100)
(50)
-
50
100
150
200
250
Feb-08 Mar-09 Apr-10 May-11 Jun-12 Jul-13 Aug-14 Sep-15 Oct-16
Change in balance sheet during QE
Expected 2018-2020 average monthly redemptions
QE 1 QE2 QE3
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Mo
nth
0
Mo
nth
4
Mo
nth
8
Mo
nth
12
Mo
nth
16
Mo
nth
20
Mo
nth
24
Mo
nth
28
Mo
nth
32
Mo
nth
36
Mo
nth
40
Mo
nth
44
Mo
nth
48
Mo
nth
52
Mo
nth
56
Mo
nth
60
Mo
nth
64
Mo
nth
68
Mo
nth
72
Mo
nth
76
Mo
nth
80
Mo
nth
84
Mo
nth
88
Mo
nth
92
Mo
nth
96
Mo
nth
10
0
Sha
re o
f Q
E p
rog
ram
in p
urc
ha
ses
Pace of QE vs QERO
QE pace QERO pace
• Since the program was well-telegraphed and is relativelymodest in scope, we do not think it will lead to significantmarket moves, but it should add further pressure on long-term rates, in our opinion.
U.S
. D
olla
rs
(Bln
s)
23
S&P 500 Index & QE
24
Total Assets of Major Central Banks
25
Total Assets: FED, ECB & BOJ
26
Total Assets: % of Local Currency GDP
27
Total Assets: Yearly Percent Change
28
Economic Breakdown
Etc.
29
Oil OverviewThe U.S. oil rig count has more than doubled in response to the oil recovery since January 2016, and the price rally over the past few months suggests potential strengthening ahead.
30
U.S. Crude Oil Output
31
Money Supply Concerns
Source: Evercore ISI32
Aluminum & Steel Product Imports
Source: Bank of America Merrill Lynch Global Research. Data as of February 5, 2018. *Morgan Stanley Capital International All Country World Index.It is not possible to invest directly in an index. Past performance is no guarantee of future results.The chart is based on analyzing every instance of a pullback in the ACWI by 6-7% throughout its history since data began in 1988,then averaging the subsequent stock price recoveries of all such instances. The average is thus a signal number, used to producean average time frame for recovery.
33
Current Market Conditions
EARLY EXPANSION
LATE EXPANSION
EARLY CONTRACTION
LATE CONTRACTION
Mid Cycle
LATE EXPANSION
EARLY EXPANSION
34
Current Market Conditions
Confidence
Indifference
Dismissal
Denial
Fear
Contempt
Enthusiasm
Caution
Doubt
Contempt
GREED
EARLY EXPANSION
LATE EXPANSION
EARLY CONTRACTION
LATE Panic
CONTRACTION
Mid Cycle
35
Questions?
36
.�pU.S. TRUST � Bank of America Corporation