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2014 Midyear Update

2014 Midyear Update. Nick Sargen Chief Economist. Introducing the Stanford Colts!. Investment Results (annual total returns in %). *Includes dividends except for Emerging Markets, which is price change Source: Bloomberg. 3. For Internal Use Only. What was Priced into Markets?.

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2014 Midyear Update

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  1. 2014 Midyear Update Nick Sargen Chief Economist

  2. Introducing the Stanford Colts!

  3. Investment Results (annual total returns in %) *Includes dividends except for Emerging Markets, which is price change Source: Bloomberg 3 For Internal Use Only

  4. What was Priced into Markets? • 2014: A Breakout Year for U.S. • Improved Performances (Diminished Risks) Abroad • Fed ends QE, but refrains from tightening

  5. Source: Barron’s

  6. Treasury Yield Curve Source: Bloomberg

  7. Federal Funds Futures Expectations Source: Bloomberg

  8. The Fed’s Twin Objective: Inflation and Unemployment % Source: BLS, BEA 8

  9. Inflation Expectations Source: Bloomberg 9

  10. Two Views of the Economy: Real GDP Growth vs. Nonfarm Payrolls Growth Source: BEA

  11. Read GDP Growth and Fiscal Drag Source: BEA

  12. Business Surveys Have Improved Recently Source: ISM, Bloomberg For Internal Use Only 12

  13. Global Surveys Point to Moderate Economic Growth % Source: JP Morgan, Bloomberg

  14. Tensions in the Euro-zone have Lessened…. Government Yields % Source: Bloomberg

  15. Oil Prices Have Been Steady Despite Increased Tensions Source: Bloomberg For Internal Use Only 15

  16. Has China Mortgaged its Future? • China withstood the Great Recession remarkably well • But it deployed a tidal wave of credit • Economic growth of 7% - 8% is likely to slow over time • China’s leaders are embarking on a new set of policy reforms • But internal political tensions are increasing For Internal Use Only

  17. Where are we in the Economic Cycle? PB PS PS Expansion PB

  18. Share of Labor Income vs. Corporate Profits Source: Bureau of Economic Analysis

  19. Portfolio Positioning • Maintain a tilt in favor of stocks over bonds • Stocks are no longer cheap; however, the market is not frothy • Stronger growth would bring the Fed into play sooner • Weaker growth would imply earnings disappointment

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