Quarterly Market Update

First Quarter 2018

Quarterly capital market review and outlook

2018 GDP Projections Viewed above 3.0%

An apparent breakout in GDP year-over-year growth levels in the second half of 2017 from the lackluster range below 2% has BBVA Research expecting stronger economic growth in the coming year. Investors need to be nimble, however, if they see signs of fixed income asset classes becoming more attractive as interest rates rise.1 

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Economic outlook

The Fed’s Delicate Balancing Act as U.S. Economy Gains Steam 

With the U.S. economy finally seeming to be firing on all cylinders amid strength in the housing, manufacturing, technology and consumer sectors, it largely remains up to the Fed to decide how to best balance the benefits of tax cuts and fiscal measures with risks from a potential pickup in inflation in 2018.

Equity outlook

Corporate Earnings Projected to Rise on Tax Cuts

A nine-year expansion and high valuations need not be cause for undue concern as long as lower corporate tax rates and opportunities in fast-growing foreign markets continue to buoy corporate earnings.

Fixed income outlook

Fed Rate Hikes, Tax Cuts and Foreign Central Bank Policy Hold the Keys to Bonds This Year

There’s no shortage of factors to weigh as the Fed stands ready to hike interest rates faster than anticipated on worrying signs of inflation growth and the tap of foreign liquidity supporting 10-year Treasuries could dry up as central banks in Europe and Asia curb their quantitative easing programs. The adverse impact of the tax plan on munis will likely reduce new issuance by up to 25% in 2018, probably enough to negate higher yields caused by lower tax rates. 


Q&A with Chief Investment Strategist for BBVA Compass Global Wealth, Dan Davidson and Chief of Equity and Alternative Investments for BBVA Wealth Solutions2, Anne-Joëlle Viguier-Galley

In this edition of the BBVA Compass Market Outlook, Mr. Davidson and Ms. Viguier-Galley consider the various ways in which the tax cuts will affect businesses, individual taxpayers and, ultimately, the economy as a whole.

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Details you need to make a smart decision

  1. BBVA Research, https://www.bbvaresearch.com/en/publicaciones/presentation-u-s-economic-outlook-first-quarter-2017
  2. BWS is BBVA Wealth Solutions, Inc., a registered investment advisor and an affiliate of Compass Bank.

BBVA Compass is the trade name for Compass Bank, Member FDIC, and a member of the BBVA Group. Securities products are NOT deposits, are NOT FDIC insured, are NOT bank guaranteed, may LOSE value and are NOT insured by any federal government agency.

This material contains forward looking statements and projections. There are no guarantees that these results will be achieved.

Investing involves risk including the potential loss of principal. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results. Please note that individual situations can vary.  Therefore, the information presented here should only be relied upon when coordinated with individual professional advice.

Indexes are unmanaged and investors are not able to invest directly into any index.

International investing involves special risks not present with U.S. investments due to factors such as increased volatility, currency fluctuation, and differences in auditing and other financial standards. These risks can be accentuated in emerging markets.

Investments in stocks of small companies involve additional risks. Smaller companies typically have a higher risk of failure, and are not as well established as larger blue-chip companies. Historically, smaller-company stocks have experienced a greater degree of market volatility than the overall market average.

Equity investments tend to be volatile and do not involve the guarantees associated with holding a bond to maturity.

In general, the bond market is volatile as prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

The investor should note that vehicles that invest in lower-rated debt securities (commonly referred to as junk bonds) involve additional risks because of the lower credit quality of the securities in the portfolio. The investor should be aware of the possible higher level of volatility, and increased risk of default.

Municipal bond offerings are subject to availability and change in price. If sold prior to maturity, municipal bonds may be subject to market and interest risk. An issuer may default on payment of the principal or interest of a bond. Bond values will decline as interest rates rise. Depending upon the municipal bond offered, alternative minimum tax and state/local taxes could apply.

The price of commodities is subject to substantial price fluctuations of short periods of time and may be affected by unpredictable international monetary and political policies. The market for commodities is widely unregulated and concentrated investing may lead to higher price volatility.

Investments in real estate have various risks including possible lack of liquidity and devaluation based on adverse economic and regulatory changes.

Other Sources: Bloomberg; California.gov; Russell.com; First page index returns are calculated on a total return basis using the following indexes: S&P 500 (SPX), MSCI World (MXWO), MSCI Emerging Markets (MXEF), BofA Merrill Lynch U.S. Treasuries 1-10 years, BofA Merrill Lynch U.S. Agencies 1-10 years, BofA Merrill Lynch U.S. Corporates 1-10 years A-AAA, BofA Merrill Lynch U.S. Municipals 1-10 years A-AAA, Russell Top 200 Index, Russell 1000 Index, Russell Midcap Index, Russell 2500 Index, Russell 2000 Index, Credit Suisse High Yield Index (CSHY), MSCI U.S. REIT Index (RMZ Index).