Presented By: Steve Skalka Investment Manager Horizon Bank
General Economy What is GDP? Gross Domestic Product equals the total value of Goods Produced Services Provided In a Country During a specific time period
Growth Has Improved * Great Recession ended June 2009
Some Comparisons
What is Driving Growth? Fiscal Policy 1) Tax Cuts Corporate (35% to 21%) Individual (slightly lower rates and higher standard deduction) 2)Increased Government Spending (increased hiring and purchases) 3) Foreign Corporate Profit Repatriation $700 bn in 2018 (Paying down debt, unfunded pension obligations, share buybacks, dividends, capital expenditures) Combined fiscal boost estimated to be $1 Trillion over next few years Perspective – 2017 U.S. GDP about $19 trillion
What is Driving Growth? Low unemployment rate (September 3.7%) Starting to see some signs of wage inflation (Amazon) Interest rates while higher still accommodative from historical perspective Tame inflation Decreased government regulation
What is Driving Growth? Confidence
Will Higher Growth Last? Fiscal Policy
Will Higher Growth Last? The boogey man in the closet
Will Higher Growth Last? What if Democrats take the House and/or Senate? If Trump has a hard time working with the Republicans how will he work with the Democrats? Common Ground Trade Infrastructure Spending
Will Higher Growth Last? Interest Rates
Will Higher Growth Last? Inflation
Will Higher Growth Last? Tariffs
Conclusion While the fiscal policy spiff should keep us above 2% in 2019 we need a new growth driver in 2020. New fiscal stimulus? Corporate capital expenditures?
Domestic Equity Market Domestic Stock’s Had Been Doing Well
U.S. Equities Fairly Priced
2018 skewed by Corporate Tax Cut
U.S. Stock Market Outlook Valuations limit the upside Earnings growth comps will be tough (Need to focus on EBITDA) May have to look beyond U.S. markets in 2019
A Positive Note
Fixed Income Outlook ( Cd’s, US Treasuries, Corp. Bonds, etc.) Key Concept
Interest Rate Drivers 1-3 year maturity Fed Funds Rate (Overnight lending rate between banks) 3 year plus maturity Inflation and/or inflation expectations
Rate Outlook
Base Case Forecast Strong economic growth carrying into 2019 Inflation rising but contained December rate hike Only two more hikes in 2019 Softer Fed Rhetoric surrounding December meeting 10 Year Treasury topping out at 3.30% This scenario should avoid an inversion
The End
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