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Quarterly Capital Market Review & Outlook

U.S. Economic Outlook

  • While growth is likely to be tepid in the second half of the year, BBVA USA Research still anticipates growth in 2019 will be greater than 2%.
  • The Federal Reserve has cut short-term interest rates twice this year. We expect one more “insurance” cut as global growth continues to deteriorate and the trade conflict remains unresolved. Easing monetary policy should be supportive of continued U.S. economic growth.
  • Despite global risks and soft sentiment, consumer spending is likely to remain solid, supported by a strong labor market and rising household incomes.

Equity Outlook

  • Despite a volatile quarter, the equity market still managed to generate a positive return with the S&P 500 up 1.7%. Year-to-date the U.S. stock market is up 20.6% fueled by the Fed’s rate cuts.
  • While lower interest rates have been supportive of the run-up in the equity market this year, it has had the opposite impact on valuations, which are starting to look expensive as corporate earnings continue to drift downwards. Lower earnings push multiples higher.
  • Slowing growth abroad, a stronger dollar, and uncertainty around the trade war has us overweighting U.S. equities vs international equities.

Fixed Income Outlook

  • Tame inflation and a dovish Fed should keep Treasury yields low in the fourth quarter. Any signs of these reversing course could cause rates to rise. 
  • The high-yield sector had a turbulent third quarter. Movements in the equity market and oil prices should continue to drive performance in the sector. 
  • While the municipal market experienced its first negative monthly return of the year in September, negative net supply and solid demand should help keep credit spreads tight in the fourth quarter.

Speak with an advisor

Fourth Quarter 2019
Total Returns -3Q19 and 1- Year

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Details you need to make a smart decision

BBVA is the trade name for BBVA USA, 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).