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INTRODUCTION
December 2015 Market Commentary
The End of an Era: 2016 Outlook Part I
Presented by:
E. William Stone, CFA®,
Chief Investment Strategist
for PNC Wealth Management®
and Institutional Asset ManagementSM
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Changing World Dynamics
INTRODUCTION
As we do each year in the December
Investment Outlook, and continue with the
January issue, we take a look at the current
year and provide a brief outlook for the next.
Basically, for the remainder of 2015, we
believe we will continue to see economic
expansion in the United States. We are also
keeping eye on the changing dynamics in
economies around the world, including the
Eurozone, Japan, and China. Currency
movements and ongoing uncertainty about oil
prices are both key.
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Economy Should Continue to Grow in 2016
Interest Rate Hike
Probability
December Futures Implied Rate
Increase Probability 10/29/15 through
11/24/15
Source: Bloomberg L.P., PNC
INTRODUCTION
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Economy Rebounding
Real GDP
1Q08 through 3Q15
Source: Bureau of Economic Analysis, Bloomberg L.P., PNC
INTRODUCTION
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Assessing the Economic Recovery
We use several indicators
to assess the
sustainability of the
economic recovery,
including:
SUSTAINABILITY
INDICATORS
• housing;
• consumer spending; and
• jobs.
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Housing Data Reflect Recovering Sector
Home Sales
Monthly, 1/31/99 through 10/31/15
Source: National Association of Realtors®, U.S. Census Bureau,
Bloomberg L.P., PNC
SUSTAINABILITY
INDICATORS
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Consumers Becoming More Confident
U.S. Personal
Consumption
Expenditures
Monthly, 1/31/05 through 9/30/15
Source: Bureau of Economic Analysis, PNC
SUSTAINABILITY
INDICATORS
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Auto Sales Having Best Year Ever
U.S. Vehicle Sales
Monthly, 1/31/00 through 10/31/15
Source: Bloomberg L.P., PNC
SUSTAINABILITY
INDICATORS
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Labor Market Improving
Nonfarm Payrolls
Monthly, 1/31/07 through 10/31/15
Source: Bureau of Labor Statistics, PNC
SUSTAINABILITY
INDICATORS
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Volatility in the Markets
S&P 500 and CBOE VIX
12/31/14 through 11/24/15
Source: Bloomberg L.P., PNC
EQUITY MARKETS
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Effects of Falling Energy Prices
EQUITY MARKETS
Fundamentally speaking, the most direct
impact to the S&P 500 this year has been the
negative effect of falling oil prices on
earnings. Currently, the Street consensus for
S&P 500 earnings is forecast to be relatively
flat compared with 2014, despite a hard hit to
the Energy sector’s earnings.
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Uncertainties in the Market
As we consider the
markets in 2016, we focus
on a few uncertainties that
we believe are of concern
to investors, including:
EQUITY MARKETS
• the timing of Fed interest rate
hikes;
• global growth concerns;
• ongoing impact of low oil prices;
• divergence in monetary policy;
• geopolitics and terrorism threats;
and
• wages and inflation expectations.
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GDP Growth Expected to be Above Trend
Housing Starts
Monthly, 1/31/05 through 10/31/15
Source: U.S. Census Bureau, PNC
CONCLUSION
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Interest Rate Hike a Near-Term Event
FOMC Projected
Federal Funds Rate and
Market Implied
Trajectory
As of 11/15/15
Source: Federal Reserve, Bloomberg L.P., PNC
CONCLUSION
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First Rate Hike Likely in December
CONCLUSION
Finally, the markets have been focused on the Fed’s stance on
interest rates. Thus, we expect that with rising rates and the slow
removal of extraordinary monetary policy, that volatility will likely
rise. PNC economists predict that after the first rate hike in
December 2015, there will likely be three more in 2016.
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December 2015 Market Commentary
The End of an Era: 2016 Outlook Part I
Presented by:
E. William Stone, CFA®,
Chief Investment Strategist
for PNC Wealth Management®
and Institutional Asset ManagementSM
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