CNR Speedometers®
Forward-Looking Six to Nine Months
Positive
Neutral
Negative
Current
Change
from Last month
Global Economic Outlook
Growth prospects remain subdued across economies by historical standards and risks continue to be skewed to the downside as the full force of cumulative global monetary tightening has yet to be felt. Even before recent bank turmoil prompted a reassessment of the health of the global banking system, credit conditions were tightening in response to higher interest rates. Since banks are relatively well-capitalized we do not anticipate a full-blown banking crisis, but we do expect a tightening of credit conditions to weigh on economic activity in the quarters ahead. With central banks still mindful of inflation risks, interest rates will likely stay at their peaks for the best part of the year in most cases.
In the US, recent developments in the banking industry further support CNR’s outlook that a mild recession is the most likely economic outcome over the second half of 2023. Ongoing geopolitical uncertainties add to the list of short-term challenges facing the economy. Despite this, underlying consumer and corporate fundamentals continue to be in much better shape relative to the eve of prior recessions and provide a strong argument against a deeper and longer lasting downturn developing. Inflation trends are now moving in a favorable albeit choppy direction, household balance sheets are generally healthy, and labor demand is resilient.
Fixed Income Outlook
The Fed looks poised to pause rate hikes at the June meeting despite still elevated inflation and wage pressures. Regardless of the outcome, balance sheet runoff will continue. Banking stress has eased, and rates are no longer trading at the flight-to-quality levels reached in March. However, the financial sector remains fragile, and we expect tightened credit conditions to impact economic growth in the second half of 2023. Long-term interest will continue to face significant levels of volatility and the removal of liquidity from a smaller Fed balance sheet, higher short-term interest rates and higher cost of debt will continue to put upward pressure on yields, especially with signs of renewed inflation pressure. This is likely to prevent yields from dropping much lower in the near-term.
With higher rates and credit concerns stemming from a slowdown in growth, we believe that investment grade taxable and municipal bonds offer the most value in 15 years, especially investments within 3 years. For investors looking to shield income from taxes and to meet future obligations, municipal bonds offer value beyond maturities of 5 years. We remain cautious in adding interest rate exposure overall, especially with signs of sticky inflation and still relatively solid economic data, which will force the Fed to pause longer than the market expects. At the same time, the competing influences of inflation and growth are expected to keep volatility high in the bond market, so we recommend short-term bonds and a reduction in opportunistic income allocations in favor of investment grade over the next 12 months.
Equity Outlook
The strength in equity markets so far this year has been notable. However, we remain cautious for now. Recent gains in stocks have been narrow and driven entirely by valuation expansion; earnings-growth expectations have moved lower. We continue to expect the near term path forward for equity markets to be more challenging as recessionary pressures build, especially if Fed officials keep monetary conditions tight. While levels of stress that we monitor in the banking system have not worsened, we are watchful for signs of additional stress that may emerge.
Despite history suggesting we are coming close to the end of the cyclical bear market, we believe it remains too early to signal the all clear sign, with corporate profit expectations the biggest source of downside risk. Though consensus earnings estimates have come down significantly over the past several months, they remain too optimistic in our opinion given higher uncertainty around the outlook and elevated recession risk. Investors will likely need better clarity on the path of inflation and Fed policy, as well as the outlook for economic and earnings growth before a sustainable rally takes hold. In the meantime, we remain focused on holding high-quality, reasonably valued US companies with durable franchises and strong management teams to help weather a recession should one occur.
Our Proprietary Global Economic & Market Summary Indicators
Select one or more speedometers from below to share or print
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Monetary Policy
Negative
Monetary Policy
What we see
Monetary policy is one of two ways the government can influence the economy and financial markets. By manipulating interest rates, the Federal Reserve can raise or lower the cost of money to stabilize or stimulate the economy. For example, if the cost of credit is reduced, more people and firms will borrow money and the economy will grow. Higher interest rates will increase the cost of its debt, reducing borrowing and company profits, and may slow economic growth.
Change over last three months
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Negative
May. 2023
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Negative
Apr. 2023
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Negative
Mar. 2023
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US Economic Outlook
Neutral
US Economic Outlook
What we see
City National Rochdale's investment and portfolio strategy is driven by our macroeconomic analysis. Timely economic forecasting is very difficult to do but extremely important, especially as the significance of economic information to financial markets continues to rise. To form a reliable outlook for the economy, City National Rochdale utilizes a comprehensive internal research effort that is complemented by an extensive set of external research from some of Wall Street's leading strategists. This approach allows us to develop a complete and dependable forecast of economic conditions. Our economic outlook indicator provides our forecasted expectation for how well the U.S. economy will perform over the next 3-6 months.
Change over last three months
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Neutral
May. 2023
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Neutral
Apr. 2023
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Neutral
Mar. 2023
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Yield Curve
Negative
Yield Curve
What we see
The shape of the yield curve gives an idea of future interest rate changes and economic activity. There are three common yield curve shapes: normal, inverted, and flat. A normal yield curve is one in which longer maturity bonds have a higher yield compared to shorter-term bonds, due to the risks associated with time, and can signal improving economic growth. An inverted yield curve is one in which the shorter-term yields are higher than the longer-term yields, which can be a sign of upcoming recession. In a flat or humped yield curve, the shorter- and longer-term yields are very close to each other, which is also a predictor of an economic transition.
Change over last three months
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Negative
May. 2023
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Negative
Apr. 2023
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Negative
Mar. 2023
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Consumer Sentiment
Neutral
Consumer Sentiment
What we see
How consumers feel about their overall financial health as well as that of the economy on the short and long term. This is an important indicator, as the consumer is the largest driver of the U.S. economy.
Change over last three months
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Neutral
May. 2023
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Neutral
Apr. 2023
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Neutral
Mar. 2023
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Disposable Personal Income
Neutral
Disposable Personal Income
What we see
The amount of money households have available for spending and saving after income taxes. A change in a household's real income is by far the most important factor in determining how much that household will spend. Other factors, such as home values or financial savings, matter as well but to a significantly lesser extent.
Change over last three months
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Neutral
May. 2023
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Neutral
Apr. 2023
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Neutral
Mar. 2023
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Labor Market
Neutral
Labor Market
What we see
Research has shown that employment and income expectations, along with credit availability, are the most important determinants of consumer spending. Personal consumption amounts to roughly 70% of GDP, making a strong labor market essential to a healthy economy.
Change over last three months
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Neutral
May. 2023
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Neutral
Apr. 2023
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Neutral
Mar. 2023
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Housing / Mortgages
Neutral
Housing / Mortgages
What we see
Housing is an important indicator of the overall economy and a key driver of investment and job growth. We look at such things as starts, permits, foreclosures, delinquencies, and bank lending to assess the sector's health.
Change over last three months
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Neutral
May. 2023
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Neutral
Apr. 2023
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Negative
Mar. 2023
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Consumer Spending
Neutral
Consumer Spending
What we see
Aggregate level of consumer spending. Since consumers are the largest driver of the U.S. economy, their spending patterns have a large impact on overall economic activity.
Change over last three months
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Neutral
May. 2023
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Neutral
Apr. 2023
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Neutral
Mar. 2023
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Interest Rates
Negative
Interest Rates
What we see
Interest rates control the flow of money in the economy. High interest rates curb inflation, but also slow down the economy. Low interest rates stimulate the economy, but could lead to inflation. Interest rates affect the economy slowly. When the Federal Reserve changes the Fed Funds rate, it can take 12-18 months for the effect of the change to percolate throughout the entire economy.
Change over last three months
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Negative
May. 2023
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Negative
Apr. 2023
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Negative
Mar. 2023
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Fiscal Policy
Neutral
Fiscal Policy
What we see
Changes in tax rates, regulation, and government spending affect the decision-making process of consumers and businesses. By changing tax laws, the government can effectively modify the amount of disposable income available to taxpayers or raise the costs for businesses. However, this process takes time, as the money needs to wind its way through the economy, creating a significant lag between the implementation of fiscal policy and its effect on the economy.
Change over last three months
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Neutral
May. 2023
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Neutral
Apr. 2023
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Neutral
Mar. 2023
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Business Outlook Spending/Surveys
Neutral
Business Outlook Spending/Surveys
What we see
Surveys of the business community on current and expected trends. This is a gauge on businesses' spending plans that provides an insight into wages, inflation, and capital equipment spending.
Change over last three months
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Neutral
May. 2023
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Neutral
Apr. 2023
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Neutral
Mar. 2023
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Leading Indexes
Negative
Leading Indexes
What we see
We look at a number of indices that have a strong track record in anticipating turns in business cycles. These include measures of production, employment, income, and sales, which have a strong correlation to subsequent economic activity. These indices provide a comprehensive summary gauge of future U.S. economic conditions, with an average lead of 12 months at business cycle peaks and 6 months at business cycle troughs.
Change over last three months
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Negative
May. 2023
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Negative
Apr. 2023
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Negative
Mar. 2023
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Corporate Profit Growth
Neutral
Corporate Profit Growth
What we see
Corporate earnings have a significant influence on the stock market as they ultimately drive stock prices. The value of securities is the present value of all future cash flows. Companies either reinvest earnings or pay them out to shareholders as dividends, which directly impact the stock price. As future expectations increase, future projections of company earnings will also increase.
Change over last three months
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Neutral
May. 2023
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Neutral
Apr. 2023
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Neutral
Mar. 2023
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International Economic Outlook
Negative
International Economic Outlook
What we see
The world has become increasingly interconnected through trade and the flow of capital, and emerging markets in particular have risen in importance as drivers of global growth. Moreover, we believe a global perspective is integral to any investment strategy.
Change over last three months
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Negative
May. 2023
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Negative
Apr. 2023
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Negative
Mar. 2023
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Political Environment
Neutral
Political Environment
What we see
The overall political climate in the U.S. with a focus on whether it will be supportive or restrictive to economic growth. For instance, while the state of discourse in politics can be tense and deadlocked, it may not be restrictive to growth. Conversely, there could be bipartisan action that is restrictive to growth. It is important to note that this category refers not to the state of discourse, but to the market impact.
Change over last three months
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Neutral
May. 2023
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Neutral
Apr. 2023
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Neutral
Mar. 2023
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Inflation
Neutral
Inflation
What we see
While a slow, persistent rise in prices is consistent with a healthy, growing economy, a rapid increase in inflation, especially if unanticipated, can be harmful. Inflation means higher consumer prices, which often slows sales and reduces profits. Higher prices often lead to higher interest rates. Over time, inflation can also wear away at the value of stocks, which is why it is crucial to monitor.
Change over last three months
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Neutral
May. 2023
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Neutral
Apr. 2023
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Neutral
Mar. 2023
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Credit Demand / Availability
Negative
Credit Demand / Availability
What we see
Availability of credit from banks and the overall financial sector to provide capital to the economy. Restrictive credit conditions are a headwind to economic activity, while accommodating conditions may boost it.
Change over last three months
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Negative
May. 2023
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Neutral
Apr. 2023
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Neutral
Mar. 2023
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Energy Costs
Neutral
Energy Costs
What we see
Significant changes in energy/oil prices can have important but differing impacts on the overall economy. Higher energy prices act as a tax on consumers and businesses, absorbing money that would normally be used to buy other goods. However, they can also boost production and investment in the mining and energy sectors of the economy. Lower energy prices can increase consumer spending and lower manufacturing costs.
Change over last three months
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Neutral
May. 2023
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Neutral
Apr. 2023
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Neutral
Mar. 2023
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Equity Market Valuation
Neutral
Equity Market Valuation
What we see
Questions of value are always subjective and relative. We believe that equity market valuation should be measured against both the value of stocks at their historical levels and the other investment options available. A stock is worth its future earnings, but that involves a degree of uncertainty, which affects its price depending on the degree. In addition, investors have many other asset classes to choose from, including corporate bonds, Treasury bonds, alternative investments, and the like. We look at all of these factors before we determine what we believe to be a fair equity market valuation.
Change over last three months
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Neutral
May. 2023
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Neutral
Apr. 2023
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Neutral
Mar. 2023
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Geopolitical Risk
Negative
Geopolitical Risk
What we see
Geopolitical risk examines how geography and economics influence politics and international relations. Geopolitical risk includes the risk associated with international policy, trade, and global financial market stability, as well as wars, terrorist acts, tensions between states, and other events that can impact the normal and peaceful course of international relations.
Change over last three months
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Negative
May. 2023
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Negative
Apr. 2023
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Negative
Mar. 2023
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DISCLOSURES
Important Disclosures
The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This presentation is not an offer to buy or sell, or a solicitation of any offer to buy or sell, any of the securities mentioned herein.
Certain statements contained herein may constitute projections, forecasts, and other forward-looking statements, which do not reflect actual results and are based primarily upon a hypothetical set of assumptions applied to certain historical financial information. Certain information has been provided by third-party sources, and although believed to be reliable, it has not been independently verified, and its accuracy or completeness cannot be guaranteed.
Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as of the date of this document and are subject to change.
All investing is subject to risk, including the possible loss of the money you invest. Past performance is no guarantee of future results.
The indicators reflect forecasts of a 6 to 9 month time horizon. The colors of each indicator, as well as the direction of the arrows represent our positive/negative/neutral view for each indicator. Thus, arrows directed towards the (+) sign represents a positive view which in turn makes it green. Arrows directed towards the (-) sign represents a negative view which in turn makes it red. Arrows that land in the middle of the indicator, in line with the (0), represents a neutral view which in turn makes it yellow. All of these indicators combined affect City National Rochdale’s overall outlook of the economy.
Non-deposit investment Products are: • not FDIC insured • not Bank guaranteed• may lose value
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