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

Fisette Financial Services, LLC

963 NE Discovery Drive, Issaquah, W A 98029 (425) 507-9004

February 8, 2020

2020 Economic & Market Outlook

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

Source: Tradingeconomics.com

Institute for Supply Management Manufacturing Business Activity Index

Jan 2020: 50.9 Above 50 indicates expansion Usually peaks 35 months prior to recession Has gone negative 3 times since 2008

Institute for Supply Management Service Sector Business Activity Index

Source: TradingEconomics.com

Jan 2020: 55.5 Expanding, but well off the high Above 50 indicates expansion e

Lowest Unemployment Rate Since 1969!

5.7% 38-year average 3.6% Jan 2020

Source: U.S. Bureau of Labor Statistics

E

Initial Claims for Unemployment

Feb 2020 211,750

Source: U.S. Emloyment and Training Administration

659,250 March 2009

Hovering at 50-year low!

E

Labor Force Participation Rate (Ages 25 – 54)

83.1%

Jan 2020 12-year high!

People continue reentering the work force

Source: Federal Reserve Bank of St. Louis

80.6%

Sep 2015 31-year low

E

Job Openings (JOLTS)

There are 1,000,000 more job

• penings than people in the labor

force to fill them.

Source: U.S. Bureau of Labor Statistics

E

Factory Unemployment: Extremely Low Even Though Manufacturing is Contracting

3.4% Jan 2020

Source: U.S. Bureau of Labor Statistics

Mean 5.8% E-m

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%

Source: University of Michigan / Federal Reserve Bank of St. Louis, Evercore ISI

With Americans’ net worth up over 11% in 2019, we’d expect confidence to remain high.

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

Source: Federal Reserve Bank of St. Louis

$22.7T

July 1981: $1T

Federal Debt as a Percent of GDP

Source: Federal Reserve Bank of St. Louis

105%

Federal Deficit as a Percent of GDP

Source: Federal Reserve Bank of St. Louis

3.8% 9.8% 2009

It’s getting worse, and will get even worse as the population ages and interest rates rise.

Misery Index: Unemployment + Inflation

Currently, the Misery Index is at 5.89% 3.6% Unemployment plus 2.29% inflation

Source: Inflationdata.com

M-e

Corporate Debt as % of Market Value

Source: Federal Reserve Bank of St. Louis

51% 1994 42% Q3-2019 E Introduction of High Yield Bonds

Federal Funds Rate

Controlled by Federal Reserve Overnight Lending Rate (Bank-to-Bank)

Source: MacroTrends

1.59% Feb 2020 Mean: 4.79% E

10-yr Treasury Rate Declined in 2019

Start: 2.71% Low: 1.47% High: 2.79% End: 1.92%

Mean: 4.55%

Source: www.multpl.com

NOT controlled by Federal Reserve 30-yr fixed rate mortgages are based

• n the 10-yr Treasury

E-m

10-Year vs. 3-Month Treasury Yield

Inverted May 23 – Oct 10 Recession indicator, or head-fake?

Source: Federal Reserve Bank of St. Louis

0.08% M-g

Inflation Still Not a Problem.

Source: Federal Reserve Bank of St. Louis

2.00% Dec 2019 3.01% Mean G

Tightening Labor Market … Leading to Higher Wages

Source: Federal Reserve Bank of Atlanta

3.7% Dec 2019 (nominal) 3.6% Mean Since 1998 G

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%)

Source: S&P Dow Jones Indices; Federated Investments

G

Investor Sentiment- Don’t Follow the Herd!

Source: SentimenTrader

Dec 24, 2018 Dec 21, 2018 rebalance Jan 7, 2020 rebalance G

Secular Bear Markets (10-12 years)

Secular bull market began in 2011

Secular Bull Markets (16 – 18 Years)

Source: JP Morgan Asset Management

G

We’re 6 – 8 Years Into this Secular Bull Market

Source: JP Morgan Asset Management

We’re Still in a Secular Bull Market

Breakout G

Annual Returns & Intra-Year Declines

Source: JP Morgan Asset Management

• 20% = Bear Market

G-m

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.