Gleanings. Gleanings Published by Raymond James & Associates. A New Queen Bee (Due to my travel schedule this text is excerpted from a prior report)

Transcription

1 Published by Raymond James & Associates Jeffrey D. Saut, Chief Investment Strategist, (727) , Scott J. Brown, Ph.D., (727) , Andrew Adams, CMT, (727) , February 27, 2017 A Monthly Chart Presentation and Discussion Pulling Together the Disciplines of Economics, Fundamentals, Technical Analysis, and Quantitative Analysis A New Queen Bee (Due to my travel schedule this text is excerpted from a prior report) By the time a queen bee is five she is old and no longer reproduces, leaving her army of honeybees torn between loyalty and survival. Since the hive cannot survive without a productive queen, the beekeeper reaches into the hive with a long-gloved hand and squashes the enfeebled queen. With the entire hive as a witness, all know the queen is dead. Absent the scent of their leader, the honeybees panic. But, the beekeeper is prepared, having ordered a new queen from a bee breeder. Arriving in a two-inch-long wooden box with a screen at the top and bottom, the queen is accompanied by a court of six to eight escort bees who care for her every whim, cleaning her, feeding her, removing her waste. At one end of the box a tiny piece of hard candy blocks access to the queen. When the box is inserted into the hive, the first instinct of the worker bees, who immediately know she has the wrong scent, is to kill the new queen. The workers struggle to reach her, but are blocked by the candy. Soon they become diverted by the sweet [candy], and over the two or three days it takes to eat through it they succumb to the enticement. Their fealty is won. All hail the new queen. Three Blind Mice by Ken Auletta (American writer, journalist and media critic) Something similar to this new queen bee story is happening now. The old queen has been the Federal Reserve and monetary policy. The new queen appears to be the White House and fiscal policy. The White House seems nervous that monetary policy, the Fed, and, up until recently, the continuing policy of lowering interest rates, has not produced the typical strong economic rebound following a soft patch. So, the new queen looks to be fiscal policy and the White House. As repeatedly stated, The White House is driving the equity markets and not the Fed, which is a huge change from the past two decades. Now Wall Street loved the old queen. The Street loved lower interest rates, figuring that stimulation would revive the banks, business, and the economy in general. Yet, many investors are leery about the new queen. The Street worries that tax cuts could be a catalyst for bigger budget deficits and higher inflation. Text continues on page 3 International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

2 Contents Market Review with Jeffrey Saut... 5 Economic & Market Update Stock Trends/Quantitative Analysis with Andrew Adams Economic Review with Scott Brown Important Disclosures International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

3 Jeffrey Saut A New Queen Bee Continued from page 1 Moreover, the media, the Democrats, and even many Republicans appear to be taking every opportunity to undermine our new President. However, the White House figures that Wall Street will eventually succumb to the sweet lure of tax cuts, reduced regulation, repatriation of foreign corporate profits, a fix for Obamacare, etc. But, beekeepers sometimes get stung! The head beekeeper in Washington, D.C., the President, knows that the economy remains in a fragile state. He knows the worker bees are worried about their jobs, their hive, and their honey. He knows they will sting Republicans in the next election if he does not get the economy moving again, but we think he will. Wall Street is also worried about getting stung. The Street has bid the S&P 500 (SPX/ ) up ~30% from last year s February lows, and up nearly 10% from the Presidential elections lows, with many indices doing better than that. So what s driving the Trump rally? Well, as the always-insightful Craig White, portfolio manager of the Canadian-based HugganWhite Wealth Management organization, writes: 1) Stimulus measures proposed by the new administration including tax reform, increased infrastructure spending, a reduction in regulation and the potential repatriation of off-shore dollars. 2) A strong fourth quarter earnings season, highlighted by more than 65% of reporting companies beating expectations. 3) Multiples that are fairly valued based on forward earnings expectations. 4) An economic backdrop that continues to show resilience with employment, manufacturing, wage growth, etc. all trending positive. 5) Business optimism that has picked up materially over the past year (NFIB Small Business Optimism Index). 6) Fund flows benefiting equities for the first time since mid ) An improvement in overall sentiment compared to early International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

4 Jeffrey Saut We agree with point 1, except we do not think infrastructure spending will occur quickly. The majority of infrastructure spending happens at the state and local level, so it is hard to envision how the government can wave a magic wand and immediately foster such spending. Recall that when the American Recovery and Reinvestment Act (ARRA) was passed, it took a long time before the first dollars showed up. Point 2 we clearly agree with since we remain of the view the profits trough occurred in the 2Q16 and the equity markets are/have transitioned from an interest rate-, to an earnings-driven, secular bull market. Indeed, as of last Friday [February 17], of the S&P 500 companies that had reported 4Q16 earnings, saw aggregate earnings improve by ~7.5% with 69% of those companies reporting better than expected numbers. Three, if you believe S&P s 2017 earnings estimate for the S&P 500, and that for every one point drop in the corporate tax rate hypothetically add $1.31 to those earnings, stocks are not all that expensive. Four, there is little doubt the economy is getting better. Five, hereto there is little doubt small business optimism has soared. Six, investors poured nearly $18 billion into equity mutual funds and exchange-traded funds in the week of February 13. And seven, sentiment is profoundly ebullient, which is actually a cause for some near-term concern. Vince Lombardi once opined, I never lost a game. I was only behind when time ran out! And, that appears to be the operative quote for me and my short-/intermediate-term models over the past few weeks since the SPX has overrun my models maximum upside trading target of 2330, as well as Trumping the models downside window of vulnerability slated for late-january/early- February. Indeed, since the election, the SPX has not experienced a 1.5% drawdown on a closing basis from a closing high. In fact, the SPX has gone 89 sessions without even a 1% decline. To be sure, the equity markets have thumbed their collective noses at: a negative astrological sign where on February 10/11 we got a Snow Moon; a Lunar Eclipse, and a Comet (Snow Moon); negative Treasury tax receipts for the first time since the financial crisis; a raging battle between the White House and the intelligence community and the media; rising inflation; a more hawkish Fed; an overbought condition; hints of protectionism; a downside island gap in the SPX chart; and a historically low Volatility Index (VIX). To this VIX point, the longest dated VIX futures contract (October 2017) traded below 17 recently. This is a fairly rare event and tends to be associated with trading tops. Furthermore, this type of recent panic buying is strongly correlated with the kind of buying you see toward the end of a trend and not the beginning of a new upside trend. Still, in this business price is reality and the reality is we have gotten wrong-footed over the past few weeks. Fortunately, most of the stocks featured in our reports have continued to do well. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

5 Jeffrey Saut Stocks Bottomed in October 2008 Our short- and intermediate-term proprietary models called the rally from the election, but have been wrong-footed recently as they looked for a downside window of vulnerability in late-january/early-february. Nevertheless, our long-term model flipped positive in October 2008 and has never turned negative. We continue to believe the secular bull market has years left to run Source: Bespoke Investment Group. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

6 Jeffrey Saut Earnings Driven We think the earnings trough occurred in 2Q16 ( ) and the equity markets have transitioned from an interest rate-, to an earnings-driven secular bull market 12-Month Earnings per Share Operating Earnings As Reported Earnings (estimates are bottom-up) (estimates are bottom-up) 2018 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $96.76 Source: Standard & Poor s, Raymond James Research. Data as of February 16, International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

7 Jeffrey Saut Years Left to Run Earnings for the 4Q16 are coming in at +7.3%, reinforcing our belief we are now in an earnings-driven secular bull market with years left to run. Source: Thomson Reuters. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

8 Jeffrey Saut Valuations Do Not Look All That Expensive Source: Thechartstore.com. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

9 Jeffrey Saut Economic Activity is Picking Up Source: Bespoke Investment Group. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

10 Jeffrey Saut Business Optimism Has Soared Source: Bespoke Investment Group. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

11 Jeffrey Saut The Stock Market As Economic Predictor The stock market has traditionally been viewed as an indicator or predictor of the economy. If that is still true, something great is getting ready to happen to the economy. Source: Thechartstore.com. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

12 Economic & Market Update Equity Markets/ Technical Analysis Monetary Policy, Inflation, FX U.S. Economy Global Economy Market Outlook Sit Tight For now, a rising tide raises all ships. We see pullbacks developing in 2017, but should be seen as buying opportunities until further clarity on reform, taxes, economic data, and earnings growth. Earnings 92% of the companies in the S&P 500 have reported results for 4Q16, 66% of companies have beat the mean EPS estimate and 52% of companies have beat the mean sales estimate. For 4Q16, the blended earnings growth rate for the S&P 500 is 4.9%. The fourth quarter will mark the first time the index has seen y/y growth in earnings for two consecutive quarters since 4Q14 and 1Q15. S&P 500 Earnings estimates*: $130.66, $ S&P 500 Key support: 2350, 2300, 2275, 2254 Key resistance: 2368, 2400 Fund Flows - Latest Flow Show report from BofA Merrill Lynch noted equity funds attracted $7.6B in latest week, their eighth straight week of inflows. U.S. stock funds saw inflows of $3B. Have now seen inflows in three of last four weeks. Inflows to value funds dwarfed those to growth. Sectors Positive: Energy, Financials, Industrials, Tech Neutral: Healthcare, Consumer Discretion, Telecom, Materials Negative: Real Estate, Utilities, Consumer Staples FOMC Minutes (the January 31-February 1 monetary policy meeting) - There was little change in Fed officials assessments of the economy and expectations for monetary policy. FOMC meeting participants (not all of whom vote on policy) saw an elevated level of uncertainty regarding the timing, composition, and size of possible fiscal stimulus, as well as its impact on the economy. March FOMC meeting is next decision on rates. Consumer Price Index (CPI Bureau of Labor Statistics) Higher than expected in January (median forecast: +0.3%, +0.6% after rounding). Core inflation also exceeded expectations by ~10 bp. Food edged up slightly (-0.2% y/y) with a continued split between food at home (- 1.9% y/y) and food away from home (+2.4% y/y). Gasoline (3.2% of the overall CPI) rose 7.8% (+5.3% before seasonal adjustment, and +20.2% y/y). The Producer Price Index (PPI Bureau of Labor Statistics) The PPI rose more than expected in January (median forecast: +0.3%), boosted by higher energy costs and a pop in trade services. Wholesale gasoline prices rose 12.9% (+9.2% before seasonal adjustment, and +32.3% y/y). Food flat. Exchange rates (February 27): EUR/USD: $1.06 GBP/USD: $1.25 USD/JPY: USD/CAD: $1.309 December Employment Report (Bureau of Labor Statistics) Nonfarm payrolls rose by 227K vs. expectations for +175K. The Unemployment Rate edged up to 4.8% (median forecast: 4.7%), reflecting pickup in labor force participation (to 62.9% from 62.7%). Increase in participation is a good sign, but still little changed over the last year. Average hourly earnings rose mildly, but these figures are choppy. Nothing here to suggest that the Fed needs to slam on the brakes, but consistent with a gradual pace of policy normalization (that is higher short-term interest rates). January Retail Sales (Census Bureau) - Retail sales rose more than expected in January (median forecast: +0.1%), but with an upward revision to December. The ex-auto figure also surprised to the upside (median forecast: +0.2%). Industrial Production (Federal Reserve) - The headline figure was weaker than expected in January (-0.3% vs. median forecast: +0.0%), restrained by warmer temperatures (reduced output of utilities). Outside of weather and autos, this was a relatively strong report. Building Permits (Commerce Department) - Single-family permits, the key figure in this report, fell 2.7% (+11.1% y/y). Housing Starts (Commerce Department) - Housing starts rose more than expected (1,246K vs. median forecast: 1,222K). Brexit The Times reports (February 27) that PM May is preparing for another Scottish vote on independence once Article 50 is triggered next month. The article notes that most Scots still oppose independence and a vote for independence would leave Scotland out of the EU initially. U.S. Border Tax Impact on European Firms Most adversely impacted would be firms with large U.S. sales, low U.S. production and low margins. While firms with sizable U.S. sales and low U.S. imports are likely net beneficiaries. ECB German Bundesbank president, Jens Weidmann has been critical of asset purchase program, but notes that program will not come to a sudden end. European Commission and ECB are at a standoff over bailout of Italy s oldest bank Questions remain and timing is uncertain over capital plans for Monte dei Paschi, diminishing confidence in financial sector. Source: FactSet, Raymond James Research. *S&P 500 earnings estimates are bottom-up operating earnings as of 2/16/17 market close, provided by Standard & Poor s. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

13 Andrew Adams Will This Ever End? The unrelenting rally since the election has blown through several possible resistance points and nothing has seemed to slow it down. Now, these former resistance levels could turn into support, with a few of the more important lines drawn on the chart below. Source: Stockcharts.com. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

14 Andrew Adams Momentum is Stretched The recent extension of the rally has pushed the S&P 500 s momentum readings to levels rarely seen over the last few years. The Relative Strength Index, which is a common measure of recent momentum, has risen into overbought territory above 70, calling into question how much longer the move can remain on this trajectory. The only other times in the past few years the RSI was this stretched was back in 2011 and a couple of times in Interestingly, though, none of these cases immediately resulted in significant declines. Source: Stockcharts.com. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

15 Andrew Adams Future Looks Bright While we remain cautious in the near term, our view that this continues to be a long-term secular bull market with years left to run has not wavered. And, if this bull run continues on the trajectory it s been on over the last few years, we may be headed for some lofty targets in the not-so-distant future (3000, 4000, and 5000 are all well within the range over the next six years). Also noteworthy is that the lower end of this range is now above the lows we experienced around this time last year, hopefully an indication that we will not challenge those levels again anytime soon. Source: Worden TC2000. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

16 Andrew Adams Not So Crazy Now We have shared similar charts like this before, noting that because the sideways range was so prolonged and wide, it provides a very sturdy base to build on. The May 2015-February 2016 decline ended up being 324 S&P 500 points and if we extend the size of that range upwards above the breakout point (2134) that gives us a price target of around 2458, which is now only about 100 points away. We are obviously not likely to go straight up to that point without some dips along the way, but the technical projections imply this a minimum target to be reached at some point over the next several months. Source: Worden TC2000. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

17 Andrew Adams Safer Stocks Starting to Lead We also seem to be seeing a rotation back into lower beta, higher yielding, and perceived safer areas of the market like Utilities, Staples, and Telecom. One way to track this is by comparing the Consumer Discretionary Sector, which generally leads when speculation is higher, and the Consumer Staples, which tends to lead once investors start seeking safety. The relative strength relationship between the two has bounced around the last couple of months, but it appears the Staples may have taken charge by breaking down through the pattern that had been building. Source: Stockcharts.com. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

18 Andrew Adams Interest Rates Consolidating One of the big stories of the second half of 2016 was that interest rates spiked sharply, with the 10-Year U.S. Treasury rate rocketing from around 1.35% to 2.6%. Since that point, though, the 10-Year rate has largely bounced around between 2.3%-2.55% as it consolidates. That sideways coiling may be building some more energy for another larger move, and a breakout from the pattern in the circle may indicate which direction that move is likely to go. On a longer-term basis, however, it does appear the long-term trend of declining rates since late 2007 has been broken. Source: Stockcharts.com. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

19 Andrew Adams U.S. Dollar in Focus I am increasingly being asked about the future direction of the U.S. Dollar, but it, too, hasn t been giving us much of a clear signal lately. All the political and Federal Reserve focus has many eyes on the strength of the dollar, but only a drop below those green support lines or a breakout above the high around the turn of the year will give us a hint on where it will go over the longer term. Source: Stockcharts.com. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

20 Andrew Adams Energy Stocks Diverging From Oil Prices and the Stock Market One interesting development over the last several weeks is that the Energy Select Sector Index has been falling (lower chart) while the price of oil (upper chart) has been trending sideways and the broader stock market has been rising. Hopefully, this could offer a good buying opportunity, especially if oil finally breaks to the upside of its recent range. Source: Stockcharts.com. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

21 Scott Brown Economic Outlook Key Themes Moderate Growth Domestic economy o Consumer fundamentals remain strong (jobs, wages) But higher gasoline prices restrain purchasing power o Housing fundamentals are strong, but affordability and supply issues will linger o Business fixed investment getting added boost from improved sentiment Long-term demographic restraints o Slower labor force growth (including reduced immigration) o Better trend economic growth depends on stronger growth in productivity Rest of the world o Brexit negotiations to begin in March, China economic restructuring likely to be uneven o Global labor force growth is slowing, but near-term economic outlook has improved Washington, D.C. o A roll back of regulations (more business-friendly ) o Infrastructure spending looking tough to achieve o Tax cuts secondary to ACA repeal and replace (or repair ) o Foreign trade (Border Tax Adjustment, supply chain disruptions, higher import costs) Federal Reserve Two to three rate increases expected in 2017 o Still data-dependent, but likely to be gradual (mid-march possible, even odds on early May) o Focus is on job market and inflation outlook Long-term interest rates seen somewhat higher (doubts on fiscal policy) International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

22 Scott Brown Washington s Impact On the Economic Outlook Fiscal Stimulus (very uncertain) Spending Cuts? Infrastructure spending o Added government spending likely to be resisted in the House o Expectations of private funding (airports perhaps - but roads and bridges?) Tax cuts easy to get through the House, but the Senate path is difficult o Path 1: Tax reform bill Needs 60 votes in the Senate Possible to get eight democratic senators on board, but likely to be watered down Path 2: Budget Reconciliation (instructions for tax reform included in Budget Resolution) o Constraint: only one set of instructions per year (used on ACA repeal in 2017) Border Tax Adjustment (increased taxes on imports) How we tax foreign earnings of U.S. firms needs fixing o Revenue from BAT ( $100 billion/year) would offset about half of corporate tax cut ( $200 billion/year) o Huge transitional costs to moving to a BAT, major supply chain disruptions o Legal challenges (the EU said it would file a complaint with the World Trade Organization) Nondefense discretionary spending is small Can t do anything about interest payments; defense spending to rise Will Republicans try to cut Social Security and Medicare benefits? Regulation (expecting a more business-friendly environment) Principals matter: a complete change in leadership within 18 months o SEC, FINRA, CFTC, FDIC, OCC, CFPB o Fed Governor positions, including Chair and Vice-Chair of Regulation and Supervision International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

23 Scott Brown 4Q16 GDP Growth Restrained by Gain In Imports International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

24 Scott Brown Eighty-Three Months of Private-Sector Job Growth International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

25 Scott Brown Getting Closer to Full Employment International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

26 Scott Brown Job Losses Are Trending at Very Low Level International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

27 Scott Brown Nominal Wage Growth Has Been Picking Up International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

28 Scott Brown Real Wage Growth Has Slowed International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

29 Scott Brown Credit Problems Mixed (Some Uptick in Auto Loan Delinquency) International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

30 Scott Brown Retail Sales Are Trending at a Moderate Pace International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

31 Scott Brown The Pace of Auto Sales Appears to Be Flattening International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

32 Scott Brown Orders For Capital Equipment Began to Turn Up in June International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

33 Scott Brown Energy Exploration Has Turned the Corner International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

34 Scott Brown Factory Output Has Been Picking Up International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

35 Scott Brown Pipeline Inflation Pressures Have Begun to Pick Up International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

36 Scott Brown Inflation Moving Toward Fed s 2% Goal International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

37 Scott Brown Federal Reserve Policy On December 14, the Federal Open Market Committee raised the target range for the federal funds rate to % (from %) and the Fed s Board of Governors approved a 25 basis point increase in the discount rate (the rate the Fed charges banks for short-term borrowing), to 1.25%. The FOMC cited realized and expected improvement in the job market. Fed policy decisions will remain data-dependent, with a focus on the job market and the inflation outlook. Fed policy will not anticipate changes to fiscal policy, but will react to the economic implications of changes once they occur. Fed economists view a tight labor market as a constraint on 2017 GDP growth. Janet Yellen s term as Fed Chair ends February 3, 2018 (she could stay on as a Fed Governor until January 31, 2024, but that is doubtful). Her replacement may be less independent and more hawkish. Stanley Fischer s term as Vice Chair ends June 12, 2018 (his terms as Governor ends in 2020). The Vice Chair of Supervision seat is still open. Governor Tarullo (resigning effective April 2017) has been acting in that capacity. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

38 Scott Brown Economic Indicators Economic Indicator Status Comments Growth Employment Consumer Spending Business Investment Manufacturing Housing and Construction Inflation Monetary Policy Long-Term Interest Rates Fiscal Policy The Dollar Rest of the World Growth is expected to be % in 2017, restrained by labor market constraints. No signs of recession on the immediate horizon. Job growth is expected to remain moderately strong in the near term, but should slow as the labor market continues to tighten. Job gains and wage growth remain supportive, but the impact of low gasoline prices is fading. Auto sales are likely to have plateaued. Businesses are more optimistic, which should lift capital spending levels in the near term. Higher wage costs ought to lead to more productivity-enhancing investment. An improving global economy should help exports. However, trade policy conflicts and tax uncertain may lead to supply chain disruptions in many industries. Generally improving, but mixed (the spring season is key). Tax cuts are expected to boost demand at the high end. The low end is constrained by affordability issues. Energy prices have firmed, pushing headline inflation up. Core inflation remains moderate, with some mild deflation in consumer goods and some upward pressure in shelter and medical care. Wage pressures, while still moderate, are building. Rising pipeline pressures in raw materials. Fed officials have appeared a bit more hawkish in recent comments. Fed policy decisions will remain data-dependent. The central bank will not try to anticipate fiscal policy changes, but will react once those changes become clear. Expectations of further Fed rate increases and substantially larger federal budgets deficit have put upward pressure on long-term interest rates, but bond market participants see large infrastructure spending and large tax cuts as less likely (than a couple of months ago). State and local government budgets are in better shape and spending should add a bit to overall GDP growth. At the federal level, the timing, character, and scale of infrastructure spending and tax cuts is very much in doubt, but will likely add to the federal budget deficit. Likely range-bound in the near term. Tighter monetary policy contributes to dollar strength, but much may already be factored in. The global outlook looks a bit brighter, but is also uncertain. The Brexit pain lies ahead for the U.K. China s transition is likely to be uneven. The possibility of trade conflicts is a major risk. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

39 Scott Brown Key Calendar Dates February 27 Durable Goods Orders (January) February 28 Real GDP (4Q16, second estimate) CB Consumer Confidence (February) March 1 Personal Income and Spending (January) ISM Manufacturing Index (February) March 3 ISM Non-Manufacturing Index (January) March 8 ADP Payroll Estimate (February) March 10 Employment Report (February) March 15 Consumer Price Index (February) Retail Sales (February) FOMC Policy Decision (Yellen press conference) March 17 Industrial Production (February) March 24 Durable Goods Orders (February) May 3 FOMC Policy Decision (no press conference) June 14 FOMC Policy Decision (Yellen press conference) July 26 FOMC Policy Decision (no press conference) September 20 FOMC Policy Decision (Yellen press conference) International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

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