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Quarterly Market Update

Quarterly Capital Markets Review and Outlook

U.S. Economic Outlook

  • First-quarter real GDP is projected to be 0.7% but is subject to further deterioration in consumer spending and equipment investment.
  • Consistent job growth above 200,000 per month falls in line with the Fed’s outlook for the labor market and helps support expectations for two rate hikes in 2016.
  • Because domestic growth appears to be in better shape than growth overseas, another quantitative easing (QE) program remains unlikely.
  • The summer driving season may be supportive of oil prices given increased demand for gasoline.

Equity Outlook

  • There are a broad range of possible outcomes for the equity market this year, but in our opinion, macroeconomics stemming from global events and pressure on margins will drive stock market returns.
  • The upcoming U.S. presidential election may contribute to short-term market volatility until the two parties choose their political candidate.
  • Should multiple expansion once again become the norm, then the market is susceptible to even greater volatility.
  • We remain positive on U.S. large-cap growth stocks, and that international stocks should outperform the U.S. given the additional economic stimulus recently announced by the European Central Bank (ECB).

Fixed Income Outlook

  • The bond market may be hard pressed to repeat the outstanding performance of the first quarter.
  • A summer slowdown would be a headwind for stocks and a tailwind for government debt if it leads to a delay in the next Fed tightening.
  • The outlook for Treasury yields will largely be determined by Fed action and the degree of international interest in U.S. debt.
  • Corporate bond issuance will remain strong especially if interest rates remain low.
  • Municipal yields will likely continue to follow Treasuries as both are subject to the same economic conditions, but muni yields may be less volatile than Treasury yields due to favorable supply/demand dynamics.

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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).