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Quarterly Market Update

Quarterly Capital Markets Review and Outlook

U.S. Economic Outlook

  • We may get to 150,000 or 200,000 new jobs per month on an ongoing basis, but we do not expect to see monthly job gains of 250,000 or more going forward.
  • Holiday sales are projected to be up this year in both brick and mortar stores and online.
  • Higher oil prices in the short-term could help stimulate inflation should the tentative OPEC agreement constrain supply.

Equity Outlook

  • Continuing moderate growth and a quiet fourth quarter could lead to double-digit equity returns by year-end.
  • We anticipate that as we move closer to a rate hike, more money will likely flow out of dividend payers and into small-cap stocks and emerging markets
  • The impact of the election cycle is likely negligible in the long term.
  • We continue to be cautious on international stocks as the Brexit transition will not onlypressure U.K. earnings and economic outlook, but also further test the stability of the European Union itself.
  • We prefer emerging market equities to foreign developed-market equities.

Fixed Income Outlook

  • We anticipate that the yield on the 10-year Treasury will end the year between 1.50 and 2.00%.
  • If Congress and the President were able to pass legislation that includes fiscal stimulus, and do it in a way that does not balloon the federal deficit, economic growth and corporate earnings could benefit greatly.
  • We anticipate fairly stable corporate bond performance, and perhaps even relative outperformance, if the third quarter earnings season is supportive of credit spreads.
  • In municipals, we continue to see heavy supply as issuers take advantage of low rates before the Fed meeting. Any back-up in tax-free yields will be welcomed by the market as demand remains quite strong.

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BBVA Compass is the trade name for Compass Bank, which is a member of the BBVA Group. Securities products are NOT deposits, are NOT FDIC insured, and are NOT bank guaranteed. May LOSE value, 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), Bloomberg 7-10 Year U.S. Treasury Index (USG4TR), Morningstar U.S. Agency Bond TR Index (MSBIUATR), Municipal Bond Buyer 40 Index (BBMIRNEW), Credit Suisse High Yield Index (CSHY), MSCI U.S. REIT Index (RMZ Index).