2017 Economic Outlook

2017 Economic Outlook

What We’ll Cover 2016 returns Can the expansion last?Major factors for 2017Our expectations

S&P 500: A Bad Start, But a Strong Finish

3

Source: Morningstar Direct, First Western Trust. As of 12/31/2016.

12/31/2015

1/18/2016

2/5/2016

2/23/2016

3/12/2016

3/30/2016

4/17/2016

5/5/2016

5/23/2016

6/10/2016

6/28/2016

7/16/2016

8/3/2016

8/21/2016

9/8/2016

9/26/2016

10/14/2016

11/1/2016

11/19/2016

12/7/2016

12/25/20161,8001,8501,9001,9502,0002,0502,1002,1502,2002,2502,300

Apr. 28: Current bull market become second-longest in history.

Jun. 23: UK votes to leave the EU (“Brexit”) briefly roiling financial markets.

Jan. 15: Oil closes below $30/bl for first time in 12 years.

Jul. 8: U.S. 10-Year Treasury yield fall to all-time low of 1.36%.

Aug. 15: S&P 500 reaches new all-time record high.

Nov. 8: Donald Trump wins U.S. Presidential election.

Dec. 14: U.S. Federal Reserve increases Fed Funds rate by 0.25% to 0.50-0.75%.

Nov. 30: OPEC agrees to cut production for first time since 2008.

2016 began poorly with the S&P 500 experiencing its worst start to any year due to concerns over global economic growth.

But, improved corporate earnings, rebounding energy prices, and renewed optimism about the U.S./global economy helped push markets higher over the course of the year.

Lorem Ipsum Vestibulum et Metus Felis, non Estibulum Nec Tincidunt Felis.

Executive Presentation | June 2011

Volatility Is a CommonOccurrence in Investing

While volatility can put investors on edge, it is a normal part of investing.

Over the past 35 years, the S&P 500 has experienced an average -14% intra-year decline, yet calendar year returns largely still ended positive.

Source: Standard & Poor’s, First Western Trust. *As of 12/31/2016.

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

-55-45-35-25-15

-55

15253545

26

-10

1517

1

26

15

212

27

-7

26

4 7

-2

34

203127

20

-10-13

-23

26

93

144

-38

2313

0

13

30

61

12

-17-17-14-7

-12-8 -9

-34

-8-8

-20

-6 -6 -5 -9-3

-8-11-19

-12-17

-26-32

-14-8 -7 -8-10

-47

-28

-16-18-9.9-5.8-5.76-12-9

S&P 500 Calendar Year Returns (%) vs. Intra-year Declines (%)

Calendar Year Returns (PR) Intra-Year Declines (PR)



Source: Bloomberg, Morningstar Direct, First Western Trust.

2009 2010 2011 2012 2013 2014 2015 2016-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

-19%

31%

14%5% 9% 9%

-2% 2%

43%

-18% -14%

8%

21%

3%

1%8%

2%

2%

2% 2%

2%

2%

2%

2%

26%

15%

2% 16%

32%

14%

1%

12%

Dividends

Multiple Expansion

Earnings Growth

The S&P 500’s returns are split into multiple components.

In 2016, multiple expansion drove 8% of the S&P 500’s 12% return. Dividends have held steady for the past 8 years, and earnings growth rebounded to 2% in 2016 after -2% returns in 2015.

S&P 500 Annual Total Returns Were Up in 2016

What We’ll Cover2016 returnsCan the expansion last?Major factors for 2017Our expectations



Source: JPMorgan, BEA, NBER, First Western Trust.

*Chart assumes current expansion started in July 2009 and continued through December 2016, lasting 90 months so far. Data for length of expansions and recessions obtained from the National Bureau of Economic Research (NBER).

0

20

40

60

80

100

120

90

Length of Economic Expansions & Re-cessions

ExpansionsRecessions

1912 1921 1933

1949 1961 1980 2001

On average, expansions last about 47 months, and recessions last about 15.

Since July 2009, our economic expansion has lasted 90 months (or 7.5 years), but much of the growth has been measured. Only recently have we started to see investors becoming more confident and less fearful since the Great Recession.

While 7.5 years may seem like a long time, the United States has experienced an expansion lasting 10 years.

1900

Our Current ExpansionHas Lasted 90 Months


Executive Presentation | June 2011 Source: Capital Group, First Western Trust.

Netherlands ( 1982 - 2008) Australia (1991 - present)

Canada (1961 - 1981)France (1975 - 1992)

United Kingdom (1991 - 2008) Sweden (1993 - 2008)

U.S. (1991 - 2001)U.S. (1961 - 1969)U.S. (1982 - 1990)

U.S. (2009 - present)

25.7525.5

20.51716.75

1510

8.757.757.5

The current U.S. expansion continues to show that age is only a number.

Including the U.S., several countries have enjoyed very long expansions in the past.

Although we are likely closer to the end of this cycle than the beginning and political uncertainty remains, there are few signs of imbalances building in the economy or reason to believe the expansion can’t continue.

Expansions Have Lasted10+ Years in Many Countries

What We’ll Cover2016 returnsCan the expansion last?Major factors for 2017Our expectations



Source: Bloomberg, First Western Trust.

2014 – 2015 Actuals 2016 – 2018 Forecasted

-6.0

-1.0

4.0

9.0

14.0

2016

F

2016

F

2016

F

2016

F

2016

F

2016

F

U.S.: 1.6%

Emerging Markets (incl. China): 3.8%

Eurozone: 1.6% China:

6.7% Japan: 0.9%

Global: 3.1%

2018

F

While a number of geopolitical risks, including Brexit and various populist movements could impact the economy, global GDP projections for 2016 – 2018 have largely been

encouraging.

Global GDP Shows SomePositive Signs

2014

2014

2014

2014

2014

2014

2018

F

2018

F

2018

F

2018

F

2018

F


Executive Presentation | June 2011Source: BLS, Factset, JPMorgan, First Western Trust.

In November, the U.S. unemployment rate hit 4.6%, indicating that unemployment has moved into ‘full employment’ territory.

Wages are beginning to show improvement with wage gains widespread across industries, which could boost consumer spending in 2017.

Wage Gains Could SignalIncreased Consumer Spending



Source: Fidelity Investments (AART), First Western Trust.

While investor concern over the timing of the first rate hike led to market volatility, the rate increases should not be feared.

Instead, they should be viewed as a sign of a strengthening economy.

Fidelity Investments proprietary analysis of historical asset class total returns, using data from indices from: Barclays, Fidelity Investments, Morningstar, Standard & Poor’s.

Timing of Rate Hikes HaveLed to Market Volatility


Executive Presentation | June 2011Source: Federal Reserve, CME Group, First Western Trust. As of 12/29/2016.

YE 2017 YE 2018 YE 20190.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

1.4%

2.2%

2.8%

1.1%

1.7%2.0%

Fed Funds Rate Forecast: Fed vs. Market Implied

Fed Forecast Market Implied

At its December meeting, the Fed revised its outlook for 2017 rate hikes from two (2) to three (3), leading to a year-end forecast of 1.4%.

The market continues to be less aggressive in its forecast, especially for 2018 and 2019.

We Expect Three Interest Rate Hikes in 2017



Source: JPMorgan Asset Management, FactSet, Standard & Poor’s, FRB, First Western Trust.

When 10-year treasury yields are below 5%, rising rates have historically been associated with rising stock prices.

This bodes well for investors in 2017.

Corre

latio

n Co

efficie

nt

10-Year Treasury YieldMay 1963 – December 2016

Returns based on price index only and do not include dividends. Markers represent monthly 2-year correlations only.

Initial Rate Hikes CouldSupport Growth in Equities



Source: Bloomberg, First Western Trust. As of 12/31/2016

The recent rise in interest rates seemed to catch many investors off-guard.

However, the move was not unusual in the context of the current recovery or over longer time periods.

It’s important to remember that, despite the recent rise, interest rates remain near historic lows.

0123456789

10

2.44

10-Year U.S. Treasury Yield: 1990 - 2016

Keep Yields in Perspective

What We’ll Cover2016 returnsCan the expansion last?Major factors for 2017Our expectations for 2017



• Economic expansion is showing some renewed momentum coming into 2017

• Growth is expected to be supported more by fiscal policy as monetary stimulus is pulled back

• Corporate profits have the potential to show high single digit improvement over 2016 helped by energy, a reasonably stable dollar, and potential governmental initiatives

• P/E multiples may be negatively impacted by rising rates and higher inflation

• U.S. cannot grow in a vacuum and requires a stable-to-accelerating global economy

• Overall, expect measured growth in U.S. equities

Expect Another Year of PositiveReturns in U.S. Equities



• Eurozone economies are gaining momentum despite political headwinds

• Japan could benefit from a weak yen and supportive Abenomics

• A “hard” Brexit will likely be pursued but exit and trade negotiations will take years

• Valuations of Developed Market stocks look cheaper than the U.S.- don’t avoid them due to past disappointment

This Could Be the Year WhenInternational Stocks Shine



• China has shown improvement but remains a wild card as the Central Government targets 6.5%-7% while simultaneously reducing leverage

• Investor confidence in emerging economies has improved notably since 1Q16. Contributing factors include perceived stabilization in China, some recovery in commodity prices, and accommodative policies by major central banks

• Many emerging market sovereign balance sheets have improved

• Rising U.S. interest rates coupled with a strong dollar could be a headwind for emerging markets

• Be cautious with emerging market investments

Emerging Markets Have GoodValuations But Take Caution



• The Fed believes that the upside risks to their outlook have increased

• The Fed will likely raise rates three times in 2017, but will remain data dependent

• Bonds remain a stabilizing element of a diversified portfolio.

• Own some shorter duration bonds alongside core holdings as defensive strategy. Active sector allocation can mute the risk of inflation

Consider Fixed Income to HelpStabilize a Diversified Portfolio



Call our team at 303.531.8100 or click here to have one of our

advisors reach out to you.

http://info.myfw.com/investment-consultation



22

Investment and insurance products and services are not a deposit, are not FDIC insured, are not insured by any federal government agency, are not guaranteed by the bank and may go down in value. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for accounting, legal or tax advice.

Disclosures

Date post:	12-Apr-2017
Category:	Economy & Finance
Upload:	firstwesterntrust
View:	247 times
Download:	0 times

2017 Economic Outlook

Economy & Finance