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Quarterly Market Update

First Quarter 2017

Quarterly capital market review and outlook

Projecting 2.30% GDP in 2017

Continued strong consumption and improving business confidence combined with less drag from the oil and gas sector and more aggressive fiscal policy should bolster economic growth in 20171.

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Economic outlook

Pace of economic growth potentially accelerates in 2017

Going forward, the economy may see a lift from President-elect Trump’s proposed stimulus programs including tax reform and infrastructure spending. The question now becomes how much of the good news has already been discounted into stock and bond prices?


Equity outlook

Global populist political theme to continue

The global populist political theme may affect upcoming elections in Germany, France, Italy, and the Netherlands. If the anti-European-union populist candidates lose, signaling continued Eurozone viability, then European stocks could see a large bounce. But given the strengthening U.S. dollar and economy, coupled with Trump stimulus policies, we continue to slightly favor the U.S.


Fixed income outlook

Linear path to higher rates possible

For the last two years, rates have risen in the fourth quarter, only to go right back down in the first quarter. That pattern could repeat again in 2017. However, given the stimulative vibe from the new administration and Congress, it seems a little less likely. Certainly, the anticipation of stimulus measures should limit the amount by which interest rates can drop. Should we get some weaker data in the first quarter, the bond market may very well sit flat as opposed to rallying like it has done in the last two years.


Q&A

Managing Director of Portfolio Management of BBVA Global Wealth, Gwynne Shackelford, and BWS2 Investment Strategist, Anne-Joëlle Viguier-Galley

In this edition of the BBVA Compass Market Outlook, Mses. Shackelford and Viguier-Galley peer into their crystal ball for a glimpse of key drivers of the 2017 economy and financial markets.

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Details you need to make a smart decision

  1. BBVA Research, https://www.bbvaresearch.com/wp-content/ uploads/2016/04/Flash-04.04.2016.pdf
  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).