Todd Owens Economic Update
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Todd Owens Economic Update

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Todd Owens' economice update slided from FCBR's January Membership Meeting.

Todd Owens' economice update slided from FCBR's January Membership Meeting.

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    Todd Owens Economic Update Todd Owens Economic Update Presentation Transcript

    • Wells Fargo Wealth Management ll lhEconomic and Market Strategy Update | January 2012A Note about DisclosuresPlease be sure to read the importantdisclosures at the end of this presentation Wells Fargo Private Bank provides financial services and products through Wells Fargo Bank, N.A. and its various affiliates and subsidiaries. Wells Fargo & Company and its affiliates do not provide legal advice. Please consult your legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your situation at the time your tax preparer submits your return.1 200907125 TPB-IM21019 (08/09)
    • Top 15 Business Stories of 2011 MF Global Arab Spring – Tunisia, Egypt, Libya, Syria Japan Earthquake and Tsunami U.S. Debt downgrade Europe on the Brink Commodity prices Global market volatility Obama versus Wall Street Occupy Wall Street/Class Warfare Seeking Wise Men Municipalities on hard times China Unemployment Housing market Passing of Steve Jobs Source CNBC2
    • Today’s Agenda Where are we in this economic cycle? Where are we in this market cycle? Investment strategies to consider in your portfolio I i id i f li3
    • U.S. GDP OutlookU.S.U S economic growth i i h improved i the third quarter. We d in h hi d Ware on track to reach our full-year 1.7 percent estimate. U.S. GDP Growth Estimates 5 3.9 Actual %) 3.8 3.8 ualized Grow Rate (% 4 Estimated 3 2.7 2.5 2.3 wth 2.0 2 1.7 1.3 1 0.4 0 Annu -1 -0.7 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11Source: Wells Fargo Wealth Management, 12/1/11 4
    • U.S. Economic OutlookThe U STh U.S. economy may experience further improvement i f h iin the fourth quarter. Leading Indicators Are Positive 1.40 1.2 1.20 Actual %) 1.0 10 Inde Monthly Change (% 1.00 0.9 0.8 0.80 0.7 0.7 0.7 0.6 0.60 0.40 0.3 0.3 0.2 0.2 0.2 0.2 0.20 0.1 0.00 ex -0.20 -0.40 -0.3Source: FactSet, 11/30/11 5
    • Stimulus Winding DownEighty-seven percent of the U.S. stimulus has been h f h l h bdistributed. U.S. Stimulus Funding g Total Paid Out $733 B 350 Total Funded $840 B $300 300 250 $218 $215 illions 200 00 $ bi 150 100 50 0 Tax Benefits Contracts, Grants, EntitlementsSource: www.recovery.gov, 12/02/2011 Loans6
    • Consumer Confidence RisesConfidence rebounded in November, but remains weak. Confidence Jumps 15 Points in November 120.00 onfidence Survey 100.00 100 00 80.00 November, 2011 Index = 56 0 56.0 Consumer Co 60.00 60 00 40.00 October, 2011 Index = 39.8 C 20.00 20 00 March , h 2009 Index = 26.9 0.00Source: FactSet, 11/117
    • Consumers Still Buying Retail sales continue to climb. Retail Sales Growth is Positive 1.4 1.3 1.2 1.2 1.2 1.0 1.0 0 nge Mo/Mo 0.8 0.8 0.7 0.7 0.6 0.6 0.5 ercent Chan 0.4 0.3 0.3 0.3 0.2 0.2 0.0 Pe -0.2 -0.2 -0.4Source: FactSet, 12/11 8
    • Debt Service is Falling The amount of disposable income required to service h fd bl d debt has dropped to 1994 levels. Debt Payments as a % of Income 14.0 13.5 cent (%) 13.0 12.5In Perc 12.0 11.5 11.0 11 0 10.5 10.0 Jun-94 Jun 94 Jun-96 Jun 96 Jun-98 Jun 98 Jun-00 Jun 00 Jun-02 Jun 02 Jun-04 Jun 04 Jun-06 Jun 06 Jun-08 Jun 08 Jun-10 Jun 10 Source: Wells Fargo Wealth Management, Federal Reserve Board, 11/1/11 9
    • Employers are Creating Some New JobsThe unemployment rate fell to 8.6 percent inNovember, the lowest rate since March 2009. Unemployment R t Slowly Falling U l t Rate Sl l F lli 11 Unemployme Rate (%) 10 9 ent March, 2009, 8.6% November, 8 2011, 8.6% 7 6Source: FactSet, 12/1/1110
    • ISM Surveys Point to More GrowthBoth the manufacturing and the service sectors are stillexpanding, albeit at a slower rate than earlier this year. Manufacturing and Service Sectors Slow Institute of Supply Managemen Index 65 65 Exp Manufacturing nt 60 60 Index Inde panding 55 55 50 50 Service 45 Index 45 Contrac 40 40 cting 35 35 30 30 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11Source: FactSet, 12/5/1111
    • Housing Struggles ContinueWhile affordability remains attractive, weak consumerconfidence is hurting home sales. New Home Sales Near All-Time Low 1600.00 July, 2005 1,389,000 1400.00 1400 00 New Home Sales (000’s) ) 1200.00 1000.00 S 800.00 600.00 400.00 400 00 200.00 October, 2011 307,000 0.00 Jul-63 Jul 63 Jul-67 Jul 67 Jul-71 Jul 71 Jul-75 Jul 75 Jul-79 Jul 79 Jul-83 Jul 83 Jul-87 Jul 87 Jul-91 Jul 91 Jul-95 Jul 95 Jul-99 Jul 99 Jul-03 Jul 03 Jul-07 Jul 07 Jul-11 Jul 11Source: FactSet, 12/1/1112
    • Will Innovation Drive Growth Higher?Thanks t ATh k to America’s strong entrepreneurial spirit, we i ’ t t i l i itcould be underestimating future U.S. growth rates. U.S. U S Patents Soared in 2010 300000 ted 250000 Numbe of US Patents Grant 200000 150000 100000 er 50000 0Source: U.S. Patent and Trademark Office, 6/1113
    • The World is ChangingBy some measures, emerging economies are set tosurpass the developed economies in terms of total GDP. Emerging Economies Overtaking Developed 70 cent Share of Global GDP (PPP) 65 60 55 Emerging Economies 2015 53% e 50 Developed Economies D l dE i f 45 2015 47% e 40 35 Perc 30 Date 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 The Purchasing Power Parity (PPP) exchange rate is defined as the amount of currency that would be needed to purchase the same basket of goods and services as one unit of th reference currency, usually th US d ll d d i it f the f ll the dollar.Source: IMF, 9/2011 14
    • Agricultural Commodities Prices FallThe global slowdown has brought down manycommodities prices. Price Changes in Select Commodities 30% YTD %Chg 21% 20% 17% 12Mo %Chg 12% hange 10% 4% Percent Ch 0% -1% -2%-1% 0% -10% -7% -10% -12% -20% -20% -22% -22% 22% -24% -30% -28% -26% -27% -30% -31% -32% -31% -40%Source: FactSet, 11/201115
    • Today’s Agenda Where are we in this economic cycle? Where are we in this market cycle? Investment strategies to consider in your portfolio I i id i f li16
    • Equity Market ForecastsGains are expected in 2012, supported by solidearnings growth and accommodative monetary policies. Equity Eq it Market Estimates 2010(a) 2011(a) 2012(e) S&P 500 1258 1230 1350 Russell 2000 784 728 850 MSCI EAFE 1658 1428 1500 MSCI EM 1151 934 1100 Volatility (VIX Index) 18 24 27 Index price at December 31 Note: An index is not managed and unavailable for direct investment. g a: actual; e: estimateSource: Bloomberg Finance, LLP, as of 12/12/1117
    • Bull Markets Historical Perspective We b l believe the l h latest b ll market is off to a good start. bull k ff d History shows we may only be in the early stages. 700% Average Bull Market: 68 Months, 178% 600% Current Bull Market: 31 Months, 67% 87-00 urn 500%Bull Market Retu 400% 47-57 300% 82-87 Average 200% C t Current 02-07 62-66 100% 66-68 74-80 70-73 57-61 0% 0 20 40 60 80 100 120 140 160 A larger circle represents a higher return bull market Bull Market Length (Months) Past performance is no guarantee of future results. The S&P 500 is an unmanaged index and is unavailable for direct investment. Source: Bloomberg Finance LLP, S&P 500 Index Price Return as of 11/30/11 18
    • U.S. Market Volatility is HighThere has been a jump in the number of days the S&PTh h b j i th b fd th500 Index has moved up or down one percent or more. Daily Volatility Has Been Very High 70.00% 61% 60.00% 52% dex Daily Change (%) 50.00% 40.00% 36% 36% 33% 32% 30.00% 30 00% 24% 24% 20% 20% 20% 20.00% 12% 9% 10.00% Ind 0.00%Source: Bloomberg 11/11 19
    • EquitiesRiskier assets h k have been mixed in 2011. We expect b dreturns in line with earnings growth in 2012. Equity Returns b Market Segment i by k 40.0 YTD 2011 2010 30.0 26.9 25.5 19.2 15.1 20.0 15.5 16.7 Change 10.0 8.2 1.1 30 3.0 %C 0.0 -1.6 -1.4 -10.0 -4.8 -10.9 -20.0 20 0 -17.2 -30.0 MSCI EM MSCI EAFE Russell R1000 Russell S&P 500 R1000 2000 Value Midcap GrowthPast Performance is no guarantee of future results.Source: Bloomberg Finance, total return as of 11/30/1120
    • Global Dividend YieldsEquity d d d yields are attractive relative to cash dividend ld l hand U.S. Treasurys. Key Yields 6 5.0 5 3.8 3.9 4 3.7 3.3 2.9 3Yield 2.1 21 22 2.2 2 1 0.53 0 Cash 10-yr TSY U.S. MSCI AC China Brazil U.K. Germany Australia World Past Performance is no guarantee of future results. results Source: Factset, MSCI All Country World Index, 11/30/11. 21
    • Lots of “Dry Powder” on the Sidelines Ample liquidity remains available to support f financial market growth as risk appetites improve. Liquidity Li idit on the Sidelines th Sid li 4500 4500 4000 4000 3500 3500 3000 3000$ Billions 2500 2500 B 2000 2000 15-Year Average 1500 1500 1000 1000 500 500 0 0 1996 1999 2002 2005 2008 2011Source: ICI, as of 10/31/11Liquidity represented by money market mutual fund assets. 22
    • Key Points – Economy and MarketsIN OUR VIEW: We expect the U.S. economy to grow between 1.5-2.0 percent in 2011. The U.S. appears more strongly positioned than countries more directly impacted by the Eurozone debt problems. Stubbornly high unemployment and weak housing could continue to constrain U.S. economic growth. Commodity prices are easing, helping consumers and supporting corporate profit margins. The Federal Reserve’s stated intention is to keep short- and long-term interest rates low. Stocks in the U.S., Emerging markets and Europe are trading at attractive valuations from a historic perspective23
    • Today’s Agenda Where are we in this economic cycle? Where are we in this market cycle? Investment strategies to consider in your portfolio I i id i f li24
    • Asset ClassesTactical adjustments: Underweight Overweight Treasury Bonds High Yield Bonds Agency Bonds U.S. Large Cap Duration Equity Developed Market International Bonds Emerging Markets Equity Conservative and Diversified Hedge Funds1†Strategic or neutral recommendation is 0%. Asset class may not be underweighted because short 0%positions in any asset class are prohibited.1Some complementary strategies may be available to pre-qualified investors only.Suggestions as of 11/30/1125
    • Managing Through Uncertain Times Market uncertainty is not new Utilize a disciplined process to avoid the temptation to panic Increased volatility can present challenges and opportunities Strategies: g Hold enough (but not too much) liquidity Match asset allocation to time horizon M t h t ll ti t ti h i Use the RiskOptics® approach to assess types of risk Invest in a globally diversified portfolio26 26
    • Key Points – 2012 Strategy Highlights OUR RECOMMENDATIONS: Globalize all asset classes. Seek growth in emerging/frontier markets. g g g/ Consider investing in the consumer companies that are benefiting from the wealthy in Asia and the more price- conscious consumers in the EM. Consider energy and technology companies. Seek income in all four asset groups including fixed income, equity, real assets and complementary strategies. it l t d l t t t i Focus on fundamental valuation measures, such as P/E ratios. Maintain liquidity to avoid having to sell on unfavorable terms. Apply RiskOptics® approach to ensure that the sources of portfolio risk are truly diversified.27 1. Some complementary strategies may be available to pre-qualified investors only.
    • Disclosures Wells Fargo Private Bank provides products and services through Wells Fargo Bank, N.A. and its various affiliates and subsidiaries. The information and opinions in this report were prepared by the investment management division within Wells Fargo Private Bank. Information and opinions have been obtained or derived from sources we consider reliable, but we cannot guarantee their accuracy or completeness. Opinions represent Wells Fargo Private Bank’s opinion as of the date of this report and are for general information purposes only. Wells Fargo Private Bank does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report. This material is for general information only, is not suitable for all investors and is not soliciting any action from any particular investor. Information and opinions presented have been obtained or derived from sources we believe reliable, but we cannot guarantee their accuracy or completeness. Opinions represent WFB’s judgment as of the date of the report and are subject to change without notice. WFC affiliates may issue reports or have opinions, which are inconsistent with, and reach different conclusions from, this report. This report is not an offer to buy or sell or a solicitation of an offer to buy or sell any securities mentioned. Wells Fargo & Company and/or its affiliates may trade for their own accounts, be on the opposite side of customer orders, or have a long or short position in the securities mentioned herein. The investments discussed or recommended in this report are not insured by the Federal Deposit Insurance Corporation (FDIC) and may be unsuitable for some investors depending on their specific investment objectives and financial position position. Past performance is not a guide to future performance. Income from investments may fluctuate. The price or value of the investments also may fluctuate. There is always the potential for loss as well as gain. Asset allocation and diversification do not assure or guarantee better performance and cannot eliminate the risk of investment losses. Investing in foreign securities presents certain risks that may not be present in domestic securities and may not be suitable for all investors. Real estate investment carries a certain degree of risk and may not be suitable for all investors.28
    • Disclosures Some real assets may be available to pre-qualified investors only. Some alternative investments and complementary strategies may be available to prequalified investors only. Hedge strategies and private investments may be speculative and involve a high degree of risk. Hedge strategies and private investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. There is no secondary market for the investor’s interest in a hedge fund or private equity investment and none is expected to develop. There may be restrictions on transferring interests in a hedge fund or private equity investment. Fixed income securities are subject to availability and market fluctuation. These securities may be worth less than the original cost upon redemption. Certain high-yield/high-risk bonds carry particular market risks and may experience greater volatility in market value than investment grade corporate bonds. Government bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and fixed principal value. Interest from certain municipal bonds may be subject to state and/or local taxes and in some instances, the alternative minimum tax. Investing i f I ti in foreign securities presents certain risks that may not be present in domestic securities and may not be suitable i iti t t i i k th t tb ti d ti iti d tb it bl for all investors. Municipal bonds offer interest payments exempt from federal taxes, and potentially state and local income taxes. Unlike U.S. Treasurys, municipal bonds are subject to credit risk and potentially the Alternative Minimum Tax (AMT). Quality varies widely depending in the specific issuer. Corporate bonds generally provide higher yields than U.S. Treasuries while incurring higher risk. Yields are subject to change with economic conditions. Yield is only one factor that should be considered when making an investment decision. Wells Fargo & Company and its affiliates do not provide legal advice. Please consult your legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your situation at the time your tax preparer submits your return . You cannot invest directly in an index index. The Institute of Supply Management (ISM) Purchasing Manager’s Index gauges internal demand for raw materials/goods that go into end-production. An index values over 50 indicate expansion; below 50 indicates contraction. The values for the index can be between 0 and 100. You cannot invest directly in an index. The S&P/Case-Shiller® U.S. National Home Price Index is a broad, market value-weighted composite of single-family home price indices for the nine U.S. Census divisions and is calculated quarterly. S&P 500 Index is a capitalization-weighted index calculated on a total-return basis with dividends reinvested. The index includes 500 widely held U.S. market industrial, utility, transportation and financial companies.29
    • Disclosures S&P Midcap 400 Index is an unmanaged capitalization-weighted index of common stocks representing all major industries in the mid-range of the U.S. stock market. S&P Small Cap 600 Index is an unmanaged capitalization-weighted index of common stocks representing all major industries in the small-cap (between $300mn and $2 billion) are of the market. The Market Volatility Index (VIX) is an index designed to track market volatility as an independent entity. The index calculated b l l t d based on option activity and is used as an indicator of investor sentiment, with high values implying pessimism d ti ti it di d i di t fi t ti t ith hi h l i l i i i and low values implying optimism. Wilshire 5000® Equity Index is an unmanaged index made up of all U.S. stocks regularly traded on the three major U.S. exchanges, including the New York Stock Exchange, American Stock Exchange, and Nasdaq. Russell 1000® Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values values. Russell 1000® Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000®. Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 25% of the total market capitalization of the Russell 1000 Index. MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. As of June 2007 the MSCI EAFE Index consisted of 21 developed-market country indices. MSCI Europe, Australasia, Far East & Canada Gross Return Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets excluding the U.S. markets, US Morgan Stanley Capital International (MSCI) Emerging Markets Global Index is a market capitalization-weighted benchmark index made up of equities from 29 developing countries.30
    • Disclosures FTSE NAREIT Equity REIT Total Return Index is an unmanaged index reflecting performance of the U.S. real estate investment trust market. Equity Hedge: Equity Hedge strategies maintain positions both long and short in primarily equity and equity derivative securities. A wide variety of investment processes can be employed to arrive at an investment decision, including both quantitative and f d i i d fundamental techniques. l h i Relative Value Arbitrage: Investment Managers who maintain positions in which the investment thesis is predicated on realization of a valuation discrepancy in the relationship between multiple securities. Short Term Asset Management (STAM) is designed for investors seeking professional assistance in managing short-term fixed-income portfolios with an average maturity of generally less than one year.Additional information is available upon request.© 2011 Wells Fargo Bank, N.A., All rights reserved.31