Presented By: Steve Skalka Investment Manager Horizon Bank General - - PowerPoint PPT Presentation

Presented By: Steve Skalka Investment Manager Horizon Bank

General Economy

What is GDP?

 Gross Domestic Product equals the total value

• f

 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