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Climbing the Wall of Worry: U.S. Economic and Market Outlook. The views expressed in this presentation are those of the investment professional and are.

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Presentation on theme: "Climbing the Wall of Worry: U.S. Economic and Market Outlook. The views expressed in this presentation are those of the investment professional and are."— Presentation transcript:

1 Climbing the Wall of Worry: U.S. Economic and Market Outlook. The views expressed in this presentation are those of the investment professional and are subject to change at any time. These views do not necessarily reflect the views of Pioneer Investments or others in the Pioneer Investments organization. November 19, 2012

2 19220-61-1112 November 2012 | Page 2 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Agenda Overview: Sunny with a Chance of Tornados U.S. GDP Outlook: Slow Growth Should Continue Inflation: Limited Near-Term Risk Asset Prices: Where is the Relative Value?

3 19220-61-1112 November 2012 | Page 3 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Executive Summary The U.S. economy does not appear to be heading into recession (although it may be pushed into one) –We believe recent weakness was primarily a summer soft-patch which will be followed by stronger growth in the third and fourth quarters –Fiscal policy decisions in Washington are a critical concern US fiscal policy uncertainty, the European debt crisis, and Iran tensions create high uncertainty in making any forecast U.S. inflation appears likely to remain subdued in the near term Valuations discount very pessimistic macroeconomic outlook –Investors appear to be placing a very high value on safety and liquidity

4 19220-61-1112 November 2012 | Page 4 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Risks to the Outlook Slowing Chinese growth is not a major concern –U.S. GDP growth is not hostage to Chinese growth European recession: not a major problem for the U.S. –Not enough, by itself, to cause a U.S. recession European sovereign debt/banking crisis: far from solved –A chain-reaction of bank failures could be very damaging A war with Iran could trigger a global recession –Oil price spikes can cause recessions The US federal budget is unsustainable…and theres a fiscal cliff…and a debt ceiling –Which is worse: a 2013 recession or a 2018 sovereign debt crisis?

5 19220-61-1112 November 2012 | Page 5 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Downward Pressure on Global GDP Growth Drag from recessions in Eurozone and Japan and a slowdown in China

6 19220-61-1112 November 2012 | Page 6 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. European Sovereign Debt Markets Are Not Showing Extreme Distress

7 19220-61-1112 November 2012 | Page 7 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Oil Price Shocks and Recessions At current levels, the risk appears very limited

8 19220-61-1112 November 2012 | Page 8 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Agenda Overview: Sunny with a Chance of Tornados U.S. GDP Outlook: Slow Growth Should Continue Inflation: Limited Near-Term Risk Asset Prices: Where is the Relative Value?

9 19220-61-1112 November 2012 | Page 9 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. U.S. Economic Outlook – Key Points Slow growth should continue unless there is an external shock The economy appears to have moved into a phase where growth is self-sustaining –Housing and employment have become sources of incremental strength, rather than weakness We dont see the signs of excess which normally signal an impending recession We expect moderate economic growth to continue in 2012 –A seasonal strengthening in the second half is expected –But significant downside risks remain The year-end tax increases (the fiscal cliff) could cause a mild recession in the first half of 2013

10 19220-61-1112 November 2012 | Page 10 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. The Foundations of an Economic Expansion Remain in Place Key positives: –A relatively cheap dollar –Easy money (an accommodative Fed) –Functioning credit and capital markets –Limited fiscal drag (continuing budget deficits) in 2012 –Rising house prices, stock prices, employment, and incomes Few signs of economic excess/exhaustion: –No irrational exuberance…quite the opposite –Capex (residential and commercial) has been restrained –Inventories are generally under control –Private sector leverage is not excessive

11 19220-61-1112 November 2012 | Page 11 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. The Trade-Weighted Dollar Remains Low A Weak Currency Helps Support the Domestic Economy

12 19220-61-1112 November 2012 | Page 12 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. US Monetary Policy Remains Very Accommodative We expect real interest rates to remain below zero for several more years

13 19220-61-1112 November 2012 | Page 13 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Corporate Borrowing Costs Remain Very Low Companies have been able to refinance debt, reduce interest expense Barclays Capital U.S. Aggregate Credit – Corporate – High Yield indices are subsets of the Barclays Capital U.S. High Yield Corporate Index. The Barclays Capital U.S. Aggregate Corporate indices are subsets of the Barclays Capital U.S. Aggregate Bond Index. Each index represents the indicated credit rating.

14 19220-61-1112 November 2012 | Page 14 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. The Square Root (Slow Growth) Recovery/Expansion Continues

15 19220-61-1112 November 2012 | Page 15 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Quarterly Contribution to Annualized U.S. GDP Growth by Sector +5% -5% +5% -5% +5% -5%

16 19220-61-1112 November 2012 | Page 16 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Recent Softness in Personal Consumption Reflected Higher Savings Incomes have been rising, but the consumer has been saving more

17 19220-61-1112 November 2012 | Page 17 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Higher Savings This Summer Led to Rising Inventory/Sales Ratios But inventory levels are generally well-contained

18 19220-61-1112 November 2012 | Page 18 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Consumer Confidence is Rebounding

19 19220-61-1112 November 2012 | Page 19 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Employment is Still Growing…Slowly, But Growing

20 19220-61-1112 November 2012 | Page 20 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Initial Unemployment Claims are a Sensitive Economic Indicator We expect claims to continue to trend lower over time Sandy Katrina

21 19220-61-1112 November 2012 | Page 21 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. The Level of Job Openings Signals Ongoing Demand for Labor

22 19220-61-1112 November 2012 | Page 22 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Hours Worked and Average Hourly Wages – No Real Weakness

23 19220-61-1112 November 2012 | Page 23 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Home Prices Appear To Have Bottomed Fears of another collapse seem misplaced

24 19220-61-1112 November 2012 | Page 24 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. A Modest, but Sustainable, Rebound in New Home Construction Positive for both employment and GDP

25 19220-61-1112 November 2012 | Page 25 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Auto Sales Continue to Strengthen

26 19220-61-1112 November 2012 | Page 26 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Recent Economic News Has Generally Been Better than Expected

27 19220-61-1112 November 2012 | Page 27 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. The ISM Indexes Remain in Expansion Territory The pattern is consistent with a third summer soft patch

28 19220-61-1112 November 2012 | Page 28 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. The Index of Leading Economic Indicators Is Still Rising The rate of increase is consistent with modest GDP growth

29 19220-61-1112 November 2012 | Page 29 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. U.S. Economic Outlook – Key Points Slow growth should continue unless there is an external shock The economy appears to have moved into a phase where growth is self-sustaining –Housing and employment have become sources of incremental strength, rather than weakness We dont see the signs of excess which normally signal an impending recession We expect moderate economic growth to continue in 2012 –A seasonal strengthening in the second half is expected –But significant downside risks remain The year-end fiscal cliff could cause a mild recession in the first half of 2013

30 19220-61-1112 November 2012 | Page 30 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Agenda Overview: Sunny with a Chance of Tornados U.S. GDP Outlook: Slow Growth Should Continue Inflation: Limited Near-Term Risk Asset Prices: Where is the Relative Value?

31 19220-61-1112 November 2012 | Page 31 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Inflation is Not a Near-Term Concern Oil prices are moving headline CPI but not really feeding into Core CPI

32 19220-61-1112 November 2012 | Page 32 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. US Core Inflation: Restrained by Unit Labor Costs Productivity growth and modest wage growth are restraining labor costs

33 19220-61-1112 November 2012 | Page 33 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. The Output Gap Limits the Near-Term Risk of Cost-Push Inflation Labor still lacks bargaining power, businesses still lack pricing power %

34 19220-61-1112 November 2012 | Page 34 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Why Quantitative Easing Isnt Causing Inflation (Yet) The liquidity trap (pushing on a string) -- money isnt chasing goods

35 19220-61-1112 November 2012 | Page 35 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Inflation – Key Points In the near term, inflation is likely to remain moderate Without cost-of-living wage indexing, there is limited pass- through of commodity prices into wages and core inflation Core inflation is likely to remain subdued due to excess capacity and high unemployment –Core inflation is unlikely to be an issue until the unemployment rate falls low enough to exert upward pressure on wages Quantitative easing has not led to higher core inflation…but… Persistently high budget deficits and a fiat currency are the recipe for a significant longer-term inflation problem

36 19220-61-1112 November 2012 | Page 36 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Agenda Overview: Sunny with a Chance of Tornados U.S. GDP Outlook: Slow Growth Should Continue Inflation: Limited Near-Term Risk Asset Prices: Where is the Relative Value?

37 19220-61-1112 November 2012 | Page 37 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Most Commodities Are Priced Well Above the Cost of Production Often, the cure for high prices is high prices…

38 19220-61-1112 November 2012 | Page 38 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Treasury Yields Remain Near All-Time Lows

39 19220-61-1112 November 2012 | Page 39 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. U.S. TIPS Yields Are Near All-Time Lows (and below zero)

40 19220-61-1112 November 2012 | Page 40 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Corporate Spreads Appear Wide Relative to Default Risk

41 19220-61-1112 November 2012 | Page 41 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Business Profits are High 2011 was the best year ever for S&P 500 earnings…2012 should be better

42 19220-61-1112 November 2012 | Page 42 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. S&P 500 Valuations Appear Relatively Inexpensive

43 19220-61-1112 November 2012 | Page 43 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. S&P 500 Valuations Appear Relatively Inexpensive (part 2)

44 19220-61-1112 November 2012 | Page 44 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Equities Appear Very Inexpensive Relative to Bonds

45 19220-61-1112 November 2012 | Page 45 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Valuations – Key Points We Believe: Commodities Generally expensive… Fixed Income Safety and liquidity (Treasuries) appear richly valued –Little compensation for either current inflation or inflation risk Corporate (and municipal) bonds are priced for higher default rates than we consider likely Equities Inexpensive relative to bonds and historic levels

46 19220-61-1112 November 2012 | Page 46 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Investment Suitability Is Important There is no guarantee that forecasts discussed will be realized. The views expressed in this presentation are those of the investment professional and are subject to change at any time. These views do not necessarily reflect the views of Pioneer Investments or others in the Pioneer Investments organization. Neither Pioneer, nor its representatives are legal or tax advisors. In addition, Pioneer does not provide advice or recommendations. The investments you choose should correspond to your financial needs, goals, and risk tolerance. For assistance in determining your financial situation, please consult an investment professional. There is no guarantee that a diversified portfolio will enhance overall return or outperform a non diversified portfolio. Diversification does not protect against market risk.

47 19220-61-1112 November 2012 | Page 47 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Glossary of Terms The consumer price index (CPI) is a statistical time-series measure of a weighted average of prices of a specified set of goods and services purchased by consumers. The CPI measure of core inflation systematically excludes food and energy prices because they are highly volatile. The federal funds rate is the interest rate at which depository institutions lend balances (federal funds) at the Federal Reserve to other depository institutions overnight. The Goldman Sachs Commodity Index is a composite index of commodity sector returns, representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. The returns are calculated on a fully-collateralized basis with full reinvestment. The combination of these attributes provides investors with a representative and realistic picture of realizable returns attainable in the commodities markets. Government Bonds and Treasury Bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. The Leading Economic Indicators (LEI) index is a generally recognized index of several variables such as average workweek production and manufacturing, jobless claims and other statistics used to help identify turning points in US economic activity. The Barclays Capital Baa Credit Index is an unmanaged index consisting of bonds in the Industrial, Utility, Finance and non- corporate sectors rated Baa by Moody's. It is equivalent to a BBB rating by Merrill Lynch. The Barclays Capital Aa Credit Index is a sub-set of the Lehman US Credit Index. This AA investment-grade rating is composed of obligations judged to be of high quality and subject to very low credit risk. This is equivalent to a Merrill Lynch AA rating. The Merrill Lynch BB US High Yield Index is a subset of The Merrill Lynch US High Yield Index including all securities rated BB1 through BB3, inclusive. The Standard & Poor's 500 Stock Index (the S&P 500) is a commonly used measure of the broad U.S. stock market. The S&P/Case-Shiller Home Price Index (S&P/CSI) is a market capitalization-weighted composite of 9 underlying Census Division indices, 20 individual metropolitan markets, and two market capitalization-weighted composite metro-area indices. The composite index weights reflect the aggregate value of single-family housing stock in each of the underlying regions or metropolitan areas. A Treasury Inflation-Protected Security (TIPS) is identical to a treasury bond except that principal and coupon payments are adjusted to eliminate the effects of inflation. Indices are unmanaged and it is not possible to invest directly in an index.

48 19220-61-1112 November 2012 | Page 48 There is no guarantee that forecasts discussed will be realized. Past performance is no guarantee of future results. Pioneer Investments 60 State Street Boston, Massachusetts 02109 us.pioneerinvestments.com ©2012 Pioneer Investments


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