Pension Partners
Markets Webinar
June 2017
1 | June 2017 Markets Webinar
PART III
MARKETS
2 | June 2017 Markets Webinar
Disclaimer
This webinar is for informational purposes only and does not constitute an offer to
sell, a solicitation to buy, or a recommendation regarding any securities transaction, or
as an offer to provide advisory or other services by Pension Partners, LLC in any
jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under
the securities laws of such jurisdiction. The information contained in this webinar
should not be construed as financial or investment advice on any subject matter.
Pension Partners, LLC expressly disclaims all liability in respect to actions taken based
on any or all of the information on this webinar.
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BLOG POSTS
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IS THIS AS GOOD AS IT GETS?
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Volatility
Lowest since 1965…
Source: Pension Partners
6 | June 2017 Markets Webinar
Volatility
On Pace For Fewest 1% Moves Since 1964
Pension Partners and Stockcharts.com
7 | June 2017 Markets Webinar
Drawdowns
Lowest in history except for 1995
Source: Pension Partners and Stockcharts.com
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Drawdowns
The median intra-year drawdown since 1928: 13.1%
Source: Pension Partners and Stockcharts.com
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Global Equity Returns
Global rally, 11 countries hitting all-time highs on June 2
Source: Pension Partners and Stockcharts.com
10 | June 2017 Markets Webinar
Global Equity Returns
Median country up 16.4% as of June 2
Source: Pension Partners and Stockcharts.com
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Nasdaq 100 ETF
Historic Uptrend
Source: Pension Partners and Stockcharts.com
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Nasdaq 100 ETF
Historic Uptrend
Source: Pension Partners and Stockcharts.com
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FROM SILVER LININGS TO GRAY
SKIES
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From Sitting to Thinking
The transition…
“I think it was a long step forward in my trading
education when I realized at last that when old Mr.
Partridge kept on telling the other customers, “Well, you
know this is a bull market!” he really meant to tell them
that the big money was not in the individual fluctuations
but in the main movements – that is, not in reading the
tape but in sizing up the entire market and its trend.
And right here let me say one thing: After spending many
years in Wall Street and after making and losing millions
of dollars I want to tell you this: It never was my
thinking that made the big money for me. It always was
my sitting. Got that? My sitting tight!”
– Reminiscences of a Stock Operator
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Yield Curve
Near Flattest Level of the Expansion
Pension Partners and Stockcharts.com
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US Yields
Short End at 8-yr High, Long End at 7-month Low
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Pension Partners and Stockcharts.com
US Yields
3-month Libor: 8-year high; 30-yr at a 7-month low
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Pension Partners and Stockcharts.com
Credit
High Yield Energy spreads at 6-month wides
US High Yield Energy (Credit Spreads)
535
524
515
495
475
455
435
415
@CharlieBilello
395
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Jun-17
Jun-17
Jun-17
May-17
May-17
May-17
May-17
Apr-17
Apr-17
Apr-17
Apr-17
Mar-17
Mar-17
Mar-17
Mar-17
Feb-17
Mar-17
Feb-17
Feb-17
Jan-17
Pension Partners and Stockcharts.com
Feb-17
Jan-17
Jan-17
Jan-17
Dec-16
Dec-16
Dec-16
Dec-16
Dec-16
375
Credit
EM High Yield at 4-month wides
BAML Emerging Market High Yield Index (Spread)
490
485
483
480
475
470
465
460
455
@CharlieBilello
450
445
440
Feb-17
Mar-17
Pension Partners and Stockcharts.com
20 | June 2017 Markets Webinar
Mar-17
Apr-17
May-17
May-17
Jun-17
Credit
Leveraged Loans weakening…
Pension Partners and Stockcharts.com
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Risk Appetite
Low Vol outperforming High Beta
Pension Partners and Stockcharts.com
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Inflation Expectations
8-month lows
Pension Partners and Stockcharts.com
23 | June 2017 Markets Webinar
Crude Oil
At lowest levels of the year…
Pension Partners and Stockcharts.com
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Earnings
Will Energy downturn have an impact again?
Pension Partners and S&P
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Retail
At a 52-week low
Pension Partners and Stockcharts.com
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Health Care
Skyrocketing premiums, good for health insurers, bad for consumers
Pension Partners and Stockcharts.com
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Valuations
Highest in history outside of 1929 & 1997 – 02
Pension Partners and Stockcharts.com
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Sentiment
“Higher valuations will persist” “Value investing is dead”
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Sentiment
“All Time Highs”
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WHEN HIGH YIELD BECOMES LOW
YIELD
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European Junk Bonds
Lowest Yield in History
Pension Partners and Stockcharts.com
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Global 2-Year Yields
Do negative interest rates imply negative default rates?
Pension Partners
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ECONOMY/FED/GLOBAL
MONETARY POLICY
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Market Environment
Real GDP and Expansions
Annualized Real GDP (U.S. Expansions)
Annualized Real GDP (%)
Expansion # Months
@CharlieBilello
8.0%
140
7.1%
120
7.0%
6.1%
6.0%
120
106
100
Real GDP (%)
93
92
4.4%
80
4.3%
4.0%
4.0%
3.6%
58
73
3.2%
60
2.8%
3.0%
45
2.2%
39
2.0%
36
24
40
20
1.0%
12
0.0%
0
1949-53
1954-57
1958-60
FRED and Pension Partners, LLC
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1961-69
1970-73
1975-80
1980-81
1982-90
1991-01
2001-07
2009-2016
Expansion Months
5.0%
5.0%
5.1%
Market Environment
US Unemployment Rate: Lowest Since March 2001
U.S. Unemployment Rate (%)
12.0
10.8
10.0
10.0
7.8
8.0
6.3
6.0
5.0
4.4
4.0
3.8
2.0
2.5
0.0
FRED and Pension Partners, LLC
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@CharlieBilello
4.3
Market Environment
Is a Low Unemployment Rate Great News for Stocks?
FRED and Pension Partners, LLC
37 | June 2017 Markets Webinar
Market Environment
Payroll Streak Continues
Source: Pension Partners, LLC, and Bloomberg
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Market Environment
Housing Prices – New Highs (Above 2007 Peak)
Source: Pension Partners, LLC, and Bloomberg
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Market Environment
Core CPI: 1.7%, lowest since May 2015
U.S. CPI - Core (YoY % Change)
Core CPI YoY
Median
16
14
12
10
8
6
4
2
@CharlieBilello
1.7
0.6
0
FRED and Pension Partners, LLC
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Market Environment
Still easy but less so…
FRED and Pension Partners, LLC
41 | June 2017 Markets Webinar
Market Environment
Fed Rate Hike Expectations: Next Move in March 2018
Source: Pension Partners, CME Group
42 | June 2017 Markets Webinar
Market Environment
Fed Saying 1 More Hike in 2017, Market Currently Says 0
Dec 2017 Fed Funds Rate: Dot Plots vs. Futures Market
Fed Projections
Market Projections
4.00%
3.625%
@CharlieBilello
3.50%
3.125%
2.875%
3.00%
2.625%
2.375%
2.50%
2.15%
1.92%
2.00%
1.875%
1.81%
1.625%
1.44%
1.50%
1.30%
1.125%
1.375%
1.21%
1.375%
1.24%
1.375%
1.23%
(Dec '16)
(Mar '17)
(Jun '17)
0.99%
1.00%
0.69%
0.72%
(Jun '16)
(Sep '16)
0.50%
0.00%
(Dec '14)
(Mar '15)
(Jun '15)
Source: Pension Partners, Bloomberg
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(Sep '15)
(Dec '15)
(Mar '16)
Market Environment
Global Central Bank Policy Rates
Source: Pension Partners
44 | June 2017 Markets Webinar
Market Environment
Summary
•
•
•
•
•
•
•
Volatility: Mean Reverting, Expect It To Increase
1% Moves: Perfectly Normal. Expect More (only 2 thus far in 2017)
Corrections: Expect Them. (3-4 per yr on avg; have to go back to ‘95 to find yr w/o one)
Fed Hikes:
– Not Necessarily Bad.
– Greater Fear: Fed Can’t Continue to Normalize.
Low Unemployment Rate:
– On average, worse than a high unemployment rate, particularly when valuations
are high.
Central Bank Divergences:
– US/Developed World Gap Not Justifiable/Sustainable
– Emerging: Increased Ability to Ease Has Been Helpful
Markets:
– Watching Credit, Defensive Sector Behavior, Yield Curve, Inflation Expectations
– Bullish Case: International/EM Catches Up To US, Fed/ECB/BOJ Still Easy
– Bearish Case: Late Cycle, Risk/Reward less Favorable, US Valuations Will Be
Problem For All (Correlations => 1)
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pensionpartners.com
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QUESTIONS
June 2017 Markets Webinar
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