2013 3rd quarter outlook

7/27/2019 2013 3rd Quarter Outlook

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REVIEWING THE QUARTER ENDED SEPTEMBER 30, 2013

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Nicholas E. Bonn, CFP

134 MainCentre // Northville, MI 48167

248.305.5278 // [email protected] // www.centerstreetws.com

OCTOBER 2013


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Economic Review

GROSS DOMESTIC PRODUCT

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GDP grew at a more rapid pace in Q2 2013.

Source: Bloomberg, as of 6/30/13


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Economic Review

Consumer spending and private investment continued to fuel economic expansion.

CONTRIBUTIONS TO % CHANGE IN REAL GDP

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Economic Review

The unemployment rate continued falling in the quarter

largely due to a reduction in the labor force rather than new job creation.

EMPLOYMENT

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Source: Bloomberg, as of 8/31/13Civilian Unemployment Rate Monthly Payroll Changes Source: Bloomberg, as of 8/31/13


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Economic Review

Inflation trended down for the quarter and remains at extremely low levels.

INFLATION

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Economic Review

Interest rates remain at historically low levels; mortgage rates fell after the sharp rise in Q2 2013.

KEY INTEREST RATES

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Economic Review

Home Sales Source: Bloomberg, as of 8/31/13

Housing prices and sales continued to increase despite the recent rise in mortgage rates.

HOUSING MARKET

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Home Prices Source: Bloomberg, as of 7/31/13


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Capital Markets

International equities rallied in Q3 2013 but still trail U.S. equities year-to-date;

fixed income was positive for the quarter but remains negative for the year.

ASSET CLASS RETURNS

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Past performance is not indicative of future results. Annual Returns for Key Asset Classes (2002-2013). See asset class benchmarks listed on slide 27.

Source: Callan, as of 9/30/13


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Capital Markets

Virtually everything was positive in Q3 2013; many equity indices are up in excess of 20% for the year.

ASSET CLASS RETURNS

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Source: Callan

Past performance is not indicative of future results.


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Capital Markets

Some of the classic dividend-paying sectors (utilities, telecommunication services, consumer staples)

continued to lag in a strong quarter for equities.

S&P 500 SECTOR RETURNS

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Returns are based on the GICS Classification model. Returns are cumulative total return for stated period, including reinvestment of dividends. Past performance is not indicative of future results.

Source: Callan


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Capital Markets

Growth stocks outperformed value for the quarter while small caps outshined larger cap equities.

EQUITY STYLES

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12 Months ending 9/30/13Q3 2013

Style box returns based on the GICS Classification model. All values are cumulative total return for stated period including reinvestment of dividends. The Indices used from left to right, top to bottom are: Russell1000 Value Index, Russell 1000 Index, Russell 1000 Growth Index, Russell Mid-cap Value Index, Russell Mid-cap Blend Index, Russell Mid-cap Growth Index, Russell 2000 Value Index, Russell 2000 Index and

Russell 2000 Growth Index. Past performance is not indicative of future results.

22.30% 20.91% 19.27%

27.77% 27.91% 27.54%

27.04% 30.06% 33.07%

Large

Mid

Small

Value Blend Growth

3.94% 6.02% 8.11%

5.89% 7.70% 9.34%

7.59% 10.21% 12.80%

Large

Mid

Small

Value Blend Growth


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Capital Markets

The yield curve steepened over the last 12 months with the short end falling slightly

and the long end increasing significantly.

U.S. TREASURIES

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Treasury Yield Curve Source: U.S. Treasury, as of 9/30/13 2YR/10YR Treasury Spread Source: Bloomberg, as of 9/30/13


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Capital Markets

Fixed income yields stabilized in the quarter after sharp rises in Q2 2013.

FIXED INCOME YIELDS

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Source: Bloomberg and U.S. Treasury, as of 9/30/13


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Capital Markets

Treasuries look relatively more attractive as their yields rose while

the earnings and dividend yields on the S&P 500 dropped.

S&P 500 YIELDS VS. TREASURY YIELD

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Source: Bloomberg and U.S. Treasury, as of 9/30/13


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Capital Markets

The price ratios for the S&P 500 remain within their historical norms;

suggesting the market is neither cheap nor expensive.

PRICE-EARNINGS RATIO

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Price-Earnings Source: Bloomberg, as of 9/30/13 Price-Book Source: Bloomberg, as of 9/30/13


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Capital Markets

The U.S. dollar strengthened slightly against a broad basket of currencies.

FOREIGN EXCHANGE RATES

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Source: FactSet 9/30/2013 9/30/2012

Japanese Yen () / U.S. Dollar ($) 98.27 77.96

Euro () / U.S. Dollar ($) 0.74 0.77

British Pound () / U.S. Dollar ($) 0.62 0.62



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Capital Markets

Gold prices rebounded in Q3 2013 after experiencing a sharp selloff in 2013.

Oil prices surged amidst political disruptions in the Middle East.

COMMODITY PRICES

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Capital Markets

Bond flows turned sharply negative after attracting significant flows over the past 5 years;

stock flows were positive for this quarter.

MUTUAL FUND FLOWS

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Stock and Bond Funds Source: Morningstar, as of 8/1/13 Money Market Funds Source: Morningstar, as of 8/1/13


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Q4 Themes

The recent period of rising intermediate-term rates mirrored with similar instances historically;

with bonds significantly underperforming equities.

ASSET CLASS PERFORMANCE IN RISING RATE ENVIRONMENTS

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Source: FactSet and Morningstar


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FEDERAL RESERVE TAPERING

Q4 Themes

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Source: Federal Reserve, as of 9/25/13

The Federal Reserve refrained fromtapering the rate of its assetpurchases, keeping monthly bondbuying at $85 billion.

The Fed noted the rise in mortgagerates and fiscal policy are restraininggrowth. The Fed said that tighteningmonetary policy could slow growth.Most Fed officials dont see short-terminterest rate increases until 2015.

The Feds balance sheet has growndramatically since the beginning of thefinancial crisis. Total assets increasedfrom $879 billion in Q1 2007 to over$3.72 trillion at the end of Q3 2013.

The Fed made significant changes toits economic projections for 2013, 2014and 2015. It also released expectationsfor 2016.


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Higher interest and mortgage rates have caused the housing recovery to slow somewhat

but housing starts and home prices continue to trend higher.

HOUSING RECOVERY

Q4 Themes

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Source: National Association of Realtors and U.S. CensusBureau, as of 8/31/13Home Prices Housing Starts Source: U.S. Census Bureau, as of 8/31/13


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Manufacturing expansion continues, expanding 48 out of the past 50 months.

U.S. MANUFACTURING

Q4 Themes

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Source: Institute for Supply Management, as of 9/30/13

Q4 Th


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Nearly 30% of U.S. trade is with North American Free Trade Agreement (NAFTA) partners, Canada and Mexico;

Roughly 65% of imports consist of value add from the U.S. itself.

TOP U.S. TRADING PARTNERS

Q4 Themes

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Source: U.S. Census Bureau, as of 7/31/13


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2013 3rd quarter outlook

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