Fisette Financial Services, LLC 963 NE Discovery Drive, Issaquah, W - PowerPoint PPT Presentation

2020 Economic & Market Outlook Fisette Financial Services, LLC 963 NE Discovery Drive, Issaquah, W A 98029 (425) 507-9004 February 8, 2020

Marty Zweig (1942-2013) Famous Contrarian and Wall Street Guru “Don’t Fight the Fed!”

Gross Domestic Product Consumption (68%) + Investment + Govt + Net Exports 1947-2019 Average 3.2% Q1 2019: + 3.1% Q2 2019: + 2.0% Q3 2019: + 2.1% Q4 2019: + 2.1% 2019 Avg: + 2.3% Source: Federal Reserve Bank of St. Louis

Truck Tonnage Topped out well in advance of last 2 recessions (shaded areas) Source: Federal Reserve Bank of St. Louis

Institute for Supply Management Manufacturing Business Activity Index Usually peaks 35 months prior to recession Jan 2020: 50.9 Above 50 indicates expansion Has gone negative 3 times since 2008 Source: Tradingeconomics.com

Institute for Supply Management Service Sector Business Activity Index Jan 2020: 55.5 Expanding, but well off the high Above 50 indicates expansion e Source: TradingEconomics.com

Lowest Unemployment Rate Since 1969! 5.7% 38-year average 3.6% Jan 2020 E Source: U.S. Bureau of Labor Statistics

Initial Claims for Unemployment Hovering at 50-year low! 659,250 March 2009 Feb 2020 211,750 E Source: U.S. Emloyment and Training Administration

Labor Force Participation Rate (Ages 25 – 54) 83.1% 80.6% Jan 2020 Sep 2015 12-year high! 31-year low People continue reentering the work force E Source: Federal Reserve Bank of St. Louis

Job Openings (JOLTS) There are 1,000,000 more job openings than people in the labor force to fill them. E Source: U.S. Bureau of Labor Statistics

Factory Unemployment: Extremely Low Even Though Manufacturing is Contracting Mean 5.8% 3.4% Jan 2020 E-m Source: U.S. Bureau of Labor Statistics

LEADING ECONOMIC INDICATORS 1.45 Dec 2019 38-yr Avg 1.34 Source: Federal Reserve Bank of St. Louis

Jamie Dimon: Automation Replacing Workers Source: Fox Business News Apr 18, 2019

Phillips Curve Economic Theory Low Unemployment Leads to in Inflation

Jay Powell Phillips Curve Testimony Source: CNBC July 11, 2019

Univ. Of Michigan Consumer Sentiment 99.3 Dec 2019 Mean 86.3% With Americans’ net worth up over 11% in 2019, we’d expect confidence to remain high. Source: University of Michigan / Federal Reserve Bank of St. Louis, Evercore ISI

Small Business Optimism Index 102.7 Dec 2019 Source: National Federation of Independent Business (NFIB)

Federal Debt – Increasing $1 Trillion/yr. Still, Nobody Seems to Care $22.7T July 1981: $1T Source: Federal Reserve Bank of St. Louis

Federal Debt as a Percent of GDP 105% Source: Federal Reserve Bank of St. Louis

Federal Deficit as a Percent of GDP 3.8% It’s getting worse, and will 9.8% 2009 get even worse as the population ages and interest rates rise. Source: Federal Reserve Bank of St. Louis

Misery Index: Unemployment + Inflation Currently, the Misery Index is at 5.89% 3.6% Unemployment plus 2.29% inflation M-e Source: Inflationdata.com

Corporate Debt as % of Market Value 51% 1994 42% Q3-2019 Introduction of High Yield Bonds E Source: Federal Reserve Bank of St. Louis

Federal Funds Rate Controlled by Federal Reserve Overnight Lending Rate (Bank-to-Bank) Mean: 4.79% 1.59% Feb 2020 E Source: MacroTrends

10-yr Treasury Rate Declined in 2019 Start: 2.71% Low: 1.47% High: 2.79% End: 1.92% NOT controlled by Federal Reserve 30-yr fixed rate mortgages are based on the 10-yr Treasury Mean: 4.55% E-m Source: www.multpl.com

10-Year vs. 3-Month Treasury Yield Inverted May 23 – Oct 10 Recession indicator, or head-fake? 0.08% M-g Source: Federal Reserve Bank of St. Louis

Inflation Still Not a Problem. 3.01% Mean 2.00% Dec 2019 G Source: Federal Reserve Bank of St. Louis

Tightening Labor Market … Leading to Higher Wages 3.7% Dec 2019 (nominal) 3.6% Mean Since 1998 G Source: Federal Reserve Bank of Atlanta

Earnings Drive the Stock Market (over the long-term) S&P 500 Operating Earnings • 2015: $100 (- 12%) • 2016: $106 (+ 6%) • 2017: $125 (+18%) • 2018: $162 (+30%) [but stocks fell!] • 2019(e): $167 (+3%) [but stocks soared!] • 2020(e): $180 (+8%) G Source: S&P Dow Jones Indices; Federated Investments

Investor Sentiment- Don’t Follow the Herd! Jan 7, 2020 rebalance Dec 21, 2018 rebalance Dec 24, 2018 G Source: SentimenTrader

Secular Bear Markets Secular Bull Markets (16 – 18 Years) (10-12 years) Secular bull market began in 2011 G Source: JP Morgan Asset Management

We’re 6 – 8 Years Into this Secular Bull Market Breakout We’re Still in a Secular Bull Market G Source: JP Morgan Asset Management

Annual Returns & Intra-Year Declines -20% = Bear Market G-m Source: JP Morgan Asset Management

Marty Zweig (1942-2013) Famous Contrarian and Wall Street Guru “Don’t Fight the Fed!”

M2 Money Supply – Cash in Circulation • Grew at 10.4% annualized Sep – Nov 2019 – Federal Reserve expanded its balance sheet – Buying $60 billion of Treasury bills monthly • Nominal GDP is growing at 3.5% • Result: 6.9% excess liquidity looking for a home. • Money Market Funds: – $3.6 trillion (current) vs. $3.9 trillion (March 2009) • Not exactly a euphoric sign • European Central Bank and Bank of Japan are also expanding their balance sheets. Source: Barron’s “A Lot to be Thankful For” Nov 25, 2019

What We Expect in 2020 • Global growth picks up • Stable growth in the U.S. • Continued Accommodation from the Federal Reserve • No change in Fed Funds rate • Stable Inflation • A mid-single digit increase for both stocks and bonds

Raymond James’ 2020 Outlook GDP Growth: 2.1% Earnings Growth: 5.5% Inflation: 2.1% Source: RJ Portfolio & Technical Strategy

Our 2019 Concerns • China trade war resumes (not likely in 2020) • The fact that we have only one concern concerns us.

Homeownership is Key to Building Wealth Source: Seattle Times Gene Balk, “FYI Guy” Feb 13, 2019

Homeownership is Key to Building Wealth • Leverage: – $800,000 purchase price – $160,000 (20%) down payment – 4% appreciation, or $32,000 – $32,000 ÷ $160,000 = 20% gain • Pay off mortgage at retirement, and expenses decline. • If renting, expenses increases annually for life. This is a hypothetical example for illustration purposes only. Actual investor results will vary.

Jamie Dimon: U.S. vs China Source: Fox Business News Apr 18, 2019

Save the Date July 18, 2020 Client BBQ in Carnation

• The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material. • The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. • Any information is not a complete summary or statement of all available data necessary for making an investment decision, and does not constitute a recommendation. • Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of strategy selected. • Any opinions are those of Michael & Erica Fisette, and not necessarily those of RJFS or Raymond James. • "The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results. • Dividends are not guaranteed and must be authorized by the company's board of directors. • There is no assurance any of the trends mentioned will continue or forecasts will occur.