Post on 10-Jul-2020
NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE Investment products are:
July 1, 2013
BMO Economy and Markets
Retrospective and Perspective
1 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
Table of Contents
REVIEW 2
• Retrospective and Perspective 2
• Highlighted Chart 3
• Market Performance Summary 4
ECONOMY 6
STOCKS 20
BONDS 25
ALTERNATIVE ASSETS 31
2 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
Retrospective and Perspective June – Drama as Global Markets React to U.S. Fed Review
U.S.: Stock and bond markets both in the U.S. and globally took dramatic twists
and turns focused on the last ten days of the month. What sparked this market
wild fire: reaction to comments from U.S. Federal Reserve (Fed) chairman Ben
Bernanke.
In late May, Bernanke’s testimony before Congress hinted that the U.S.
economy, while weak, showed some signs of improvement. Bond yields rose
from 1.6% to 2.2%, and total returns for May were -2.6%. Then, at the podium
again on June 20 in a news briefing following the Fed Board meeting, Bernanke
made similar comments. One indication he made in regards to the U.S.
economy was “If things are worse, we will do more. If things are better, we will
do less.” On the surface, this seemed like a balanced (and more or less
benign) statement. But coupled with select data points of a weak yet improving
U.S. economy, investors concluded the Fed is about to “taper” the amount of
their monthly asset purchases. Bond yields spiked again in June, this time
reaching 2.5% for the 10-year Treasury; total returns for the month were again
-2.6%. Total returns for high yield and investment grade corporate bonds fell
similar amounts for June. Global bonds were adversely impacted, too.
Unlike May, when equities did not really react to "Fed speak,” stocks this time
reacted poorly at first. The Dow Jones Industrial Average tumbled from 15,318
on June 18 to 14,659 on June 24. Most major non-U.S. stock markets reacted
poorly, too. Then the markets seemingly concluded an improving U.S. economy
might be a good thing, and stocks staged a month-end rally that returned the
Dow to 14,909 at month-end. Housing, auto sales and employment conditions
all seem to be part of the favorable data package on the economy. However,
remember there are still many continued signs of weakness: slow job growth,
tepid velocity of money, and below peak capacity utilization, to name a few.
Asia: Japan and China took center stage in June. In Japan, after an incredible
run up in stock prices and a rapid depreciation of the yen, investors were found
taking profits and perhaps re-evaluating the prospects for success of new
initiatives across monetary, fiscal and structural reforms. Their currency has
reversed course, and stocks corrected over 20% from the highs, but they
managed to close with just a modest loss for June. Country-wide elections for
Japan’s upper house are coming in July and will be an important barometer for
the public’s reaction to Prime Minister Shinzo Abe’s programs.
China experienced a short-term credit crisis which shook local, regional and
global markets. Short-term, interbank loan rates in China (SHIBOR) shot up
dramatically and worried investors that a slowdown in China might deepen.
However, by month-end the People's Bank of China had intervened to lower
rates, and those actions reassured markets. China and emerging markets in
general produced poor stock market returns not only in June, but year-to-date,
as well. Stock valuations remain cheap in most Emerging Markets (EM) markets
but patience has weakened.
Europe: Europe continues its struggle to generate growth. There are some
encouraging signs, but not in great quantity. The UK shows better economic
growth than expected, and retail sales and consumer confidence have ticked up.
Germany has managed to avoid a recession, and modest upticks in business
confidence are encouraging. However, programs to spur lending and resolve
banking oversight initiatives are slowed by the complex political realities of the
European Union (EU). Interest rates in Spain and Italy, which have fallen
dramatically, backed up a bit during the month.
EU stocks took it on the chin: -4.5%. The riskier countries like Italy and Greece
saw their stock markets decline 9.7% and 18.4%, respectively.
Important forward-looking issues:
• U.S. economic performance and interest rate direction
• Election outcomes in Japan
• China policies to sustain slowed but steady growth
• EU progress on bank oversight and lending initiatives
TOTAL RETURNS
(as of 06/30/2013)June YTD 2013 2012
S&P 500® Index -1.34 13.82 16.00
STOXX Europe 600 Index -5.02 4.58 19.08
MSCI Emerging Markets Index -6.37 -9.57 18.22
U.S. 10-Yr Treasury -2.63 -4.89 4.18
Sources: Bloomberg L.P., BMO Global Asset Management
3 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
Highlighted Chart Bernanke Speaks; Markets React
Review
• Bond and Equity Markets have reacted to statements made by Chairman Bernanke regarding Fed
purchases of bonds
• In reaction to the markets’ actions, the Fed has gone to great lengths to explain that Quantitative Easing will
not ease until the Fed judges that the economy is growing at a sustained rate
Bernanke, Treasury Yields & S&P 500
1.01.21.41.61.8
2.02.22.42.62.8
4/1
/13
4/1
5/1
3
4/2
9/1
3
5/1
3/1
3
5/2
7/1
3
6/1
0/1
3
6/2
4/1
3
Tre
asu
ry Y
ield
(%
)
1500
1540
1580
1620
1660
S&
P 5
00
Bernanke Speaks 10-Yr. Treasury Yield S&P 500
Sources: Bloomberg L.P., BMO Global Asset Management
4 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
Highlighted items represent either the best- or worst-performing equity sector for the period. Total returns for periods of one year or more are annualized. MSCI
indices performance is net of foreign taxes on dividends. Sources: Bloomberg L.P., FactSet, BMO Global Asset Management
Market Performance Summary As of June 30, 2013
EQUITIES (% Returns) 1-Mo 3-Mo 6-Mo 1-Yr 3-Yrs 5-Yrs 10-Yrs YTD 2013 1Q 2013 2012
U.S. Large Cap Equities
S&P 500® Index -1.34 2.91 13.82 20.60 18.45 7.01 7.30 13.82 10.61 16.00
Dow Jones Industrial Average Index -1.25 2.91 15.20 18.87 18.23 8.64 7.91 15.20 11.93 10.24
Russell 1000® Index -1.36 2.65 13.91 21.24 18.63 7.12 7.67 13.91 10.96 16.42
Russell 1000® Growth Index -1.88 2.06 11.80 17.07 18.68 7.47 7.40 11.80 9.54 15.26
Russell 1000® Value Index -0.88 3.20 15.90 25.32 18.51 6.67 7.79 15.90 12.31 17.51
U.S. Mid Cap Equities
Russell Midcap® Index -1.21 2.21 15.45 25.41 19.53 8.28 10.65 15.45 12.96 17.28
Russell Midcap® Growth Index -1.22 2.87 14.70 22.88 19.53 7.61 9.94 14.70 11.51 15.81
Russell Midcap® Value Index -1.19 1.65 16.10 27.65 19.53 8.87 10.92 16.10 14.21 18.51
U.S. Small-Mid Cap Equities (SMID)
Russell 2500TM Index -1.09 2.27 15.42 25.61 19.57 9.21 10.34 15.42 12.85 17.88
U.S. Small Cap Equities
Russell 2000® Index -0.51 3.08 15.86 24.21 18.67 8.77 9.53 15.86 12.39 16.35
Russell 2000® Growth Index -0.62 3.74 17.44 23.67 19.97 8.89 9.62 17.44 13.21 14.59
Russell 2000® Value Index -0.41 2.47 14.39 24.76 17.33 8.59 9.30 14.39 11.63 18.05
International Equities
MSCI ACWI ex USA Index (Devlp. & EM) -3.75 -1.61 3.01 17.07 9.43 -0.84 7.86 3.01 4.70 16.41
MSCI EAFE Index (Developed Markets) -3.55 -0.98 4.10 18.62 10.04 -0.63 7.67 4.10 5.13 17.32
MSCI European Monetary Union Index (in €) -5.43 0.24 2.80 18.76 5.27 -1.11 4.83 2.80 2.55 18.99
MSCI AC Asia Pacific Index -2.90 -3.03 2.26 14.33 7.79 1.60 9.23 2.26 5.46 16.78
MSCI Emerging Markets Index -6.37 -8.08 -9.57 2.87 3.38 -0.43 13.66 -9.57 -1.62 18.22
Technology and Growth Stocks
NASDAQ Composite Index -1.42 4.52 13.42 17.85 18.79 9.48 8.85 13.42 8.51 17.75
ALTERNATIVES (% Returns) 1-Mo 3-Mo 6-Mo 1-Yr 3-Yrs 5-Yrs 10-Yrs YTD 2013 1Q 2013 2012
DJ UBS Commodity Index -4.71 -9.45 -10.47 -8.01 -0.26 -11.61 2.39 -10.47 -1.13 -1.06
MSCI ACWI Commodity Producers Index -6.11 -8.54 -10.88 -5.31 0.82 -9.74 7.66 -10.88 -2.55 -0.64
Wilshire U.S. REIT Index -2.11 -2.22 4.17 4.56 14.31 2.72 5.91 4.17 6.53 13.40
S&P Global REIT Index -2.75 -4.01 3.58 11.15 14.16 1.28 4.99 3.58 7.91 20.27
S&P Global Infrastructure Index -2.09 -2.80 2.40 9.96 11.86 -1.04 8.11 2.40 5.36 12.18
Review
5 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
Total returns for periods of one year or more are annualized. Sources: Barclays Capital, Bloomberg L.P., BMO Global Asset Management
Market Performance Summary As of June 30, 2013
U.S. FIXED INCOME (% Returns) 1-Mo 3-Mo 6-Mo 1-Yr 3-Yrs 5-Yrs 10-Yrs YTD 2013 1Q 2013 2012
Barclays U.S. Aggregate Index -1.55 -2.32 -2.44 -0.68 3.51 5.19 4.52 -2.44 -0.12 4.22
Barclays U.S. Interm. Gov/Crd Index -1.20 -1.70 -1.45 0.28 3.14 4.57 4.03 -1.45 0.26 3.89
Barclays U.S. Corporate Index -2.76 -3.31 -3.41 1.36 5.73 7.30 5.18 -3.41 -0.11 9.82
Barclays U.S. Treasury Index -1.10 -1.92 -2.11 -1.64 3.12 4.49 4.14 -2.11 -0.19 1.99
Barclays Securitized Index -0.98 -1.92 -1.95 -0.81 2.84 4.93 4.61 -1.95 -0.03 3.01
Barclays High Yield Index -2.62 -1.44 1.42 9.49 10.74 10.94 8.91 1.42 2.89 15.81
Merrill Lynch High Yield BB/B Constr. Index -2.68 -1.62 0.75 8.47 9.97 9.40 7.93 0.75 2.40 14.58
Barclays 1-10 yr Municipals Index -1.61 -1.83 -1.34 0.34 3.36 4.60 3.84 -1.34 0.49 3.56
Barclays Global Aggregate Bond Index -1.18 -2.79 -4.82 -2.17 3.56 3.68 4.79 -4.82 -2.09 4.32
Barclays Global Credit Index -2.52 -2.46 -3.25 3.70 6.56 5.51 5.71 -3.25 -0.82 12.09
BOND YIELDS (%) Jun 2013 Mar 2013 Dec 2012 Jun 2012 Jun 2010 Jun 2008 Jun 2003
Fed Funds Rate (Effective Rate) 0.09 0.09 0.09 0.09 0.09 2.47 1.45
3-month Treasury Bill 0.03 0.07 0.04 0.08 0.18 1.74 0.85
2-year Treasury Note 0.36 0.24 0.25 0.30 0.61 2.62 1.30
5-year Treasury Note 1.40 0.77 0.72 0.72 1.78 3.33 2.41
10-year Treasury Note 2.49 1.85 1.76 1.65 2.93 3.97 3.52
30-year Treasury Bond 3.50 3.10 2.95 2.75 3.89 4.53 4.56
Barclays U.S. Aggregate Index 2.36 1.87 1.74 1.99 2.84 5.10 3.64
Barclays U.S. Corporate Index 3.36 2.78 2.72 3.29 4.23 6.35 4.17
Barclays High Yield Index 7.02 6.47 6.79 7.88 9.28 10.92 9.07
Barclays Emerging Markets Index 5.43 4.34 4.38 5.48 6.26 7.26 7.90
Barclays Emerging Markets Corporate Index 5.96 4.66 4.72 5.85 6.45 7.88 8.44
INFLATION (%) May 2013 Mar 2013 Dec 2012 Jun 2012 Jun 2010 Jun 2008 Jun 2003
Headline CPI YoY 1.40 1.50 1.70 1.70 1.10 5.00 2.10
Core CPI YoY 1.70 1.90 1.90 2.20 0.90 2.40 1.50
Core PCE YoY 1.06 1.17 1.43 1.76 1.65 2.52 1.44
OTHER MARKETS Jun 2013 Mar 2013 Dec 2012 Jun 2012 Jun 2010 Jun 2008 Jun 2003
US$ / Euro 1.301 1.282 1.319 1.267 1.224 1.576 1.151
WTI Crude Oil Price ($/barrel) 96.6 97.6 93.8 88.7 82.3 136.1 30.2
Gold ($/troy oz) 1,235 1,599 1,675 1,597 1,242 925 346
Review
Barclays U.S. Aggregate Index
Barclays U.S. Interm. Gov/Crd Index
Barclays U.S. Corporate Index
Barclays U.S. Treasury Index
Barclays Securitized Index
Barclays High Yield Index
BofA Merrill Lynch High Yield BB/B Constr. Index
Barclays 1-10 yr Municipals Index
Barclays Global Aggregate Bond Index
Barclays Global Credit Index
6 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
Components of Real GDP
Government
Spending 17.7%
Consumption
70.8%
Investment (ex.
Housing) 11.6%
Housing 2.9%
Net Exports
-2.9%
Sources: w w w .BEA.com, BMO Global Asset Management
As of 03/31/2013
U.S. Real GDP Growth
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
Dec 0
1
Dec 0
2
Dec 0
3
Dec 0
4
Dec 0
5
Dec 0
6
Dec 0
7
Dec 0
8
Dec 0
9
Dec 1
0
Dec 1
1
Dec 1
2
QoQ
gro
wth
(%
)
11,000
11,500
12,000
12,500
13,000
13,500
14,000
GD
P L
evel (
$ b
ln)
Recession
Real GDP QoQ
Real GDP Level
Sources: Bloomberg L.P., BMO Global Asset Management
$625 bln of
output lost
$1,025 bln of
output gained
U.S. Economic Growth The U.S. economy expanded 1.8% in the first quarter of 2013, slower than the prior estimate of 2.4% growth. Despite its large downward revision, consumer spending experienced the largest increase in two years. Investments and housing had a positive contribution to growth in the first quarter, which were partly offset by a drop in defense outlays and slow exports.
Economy
Real GDP QoQ Growth and Components Contribution
1.8
1.8
-0.9
0.7
0.3
-0.1
-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0
Real GDP QoQ Grow th
Personal Consumption Contribution
Government Spending Contribution
Investment (ex. Housing) Contribution
Housing Investment Contribution
Net Exports Contribution1Q 2013
Sources: w w w .BEA.com, BMO Global Asset Management
7 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
Inflation Expectations and Nominal CPI
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Dec 0
5
Jun 0
6
Dec 0
6
Jun 0
7
Dec 0
7
Jun 0
8
Dec 0
8
Jun 0
9
Dec 0
9
Jun 1
0
Dec 1
0
Jun 1
1
Dec 1
1
Jun 1
2
Dec 1
2
Jun 1
3
CPI YoY
Short-Term Inflation Expectations
Long-Term Inflation Expectations
Sources: Bloomberg L.P., BMO Global Asset Management
Headline Inflation and 5-yr Treasury Bond Yield
-5.0
-3.0
-1.0
1.0
3.0
5.0
7.0
9.0
Dec 9
9
Dec 0
0
Dec 0
1
Dec 0
2
Dec 0
3
Dec 0
4
Dec 0
5
Dec 0
6
Dec 0
7
Dec 0
8
Dec 0
9
Dec 1
0
Dec 1
1
Dec 1
2
5-Yr Tsy BondCPI YoY
Sources: Bloomberg L.P., BMO Global Asset Management
negative
real yield
negative
real yield
U.S. Inflation Headline inflation (CPI including food and energy) inched up in May to 1.4% on a year-over-year basis. Despite tame inflation, low nominal yields have kept real yields in negative territory since early 2011.
Urban CPI Components
YoY %
Change
05/31/2013
YoY %
Change
04/30/2013
Weight in
Headline CPI
(%)
Headline CPI 1.4 1.1 100.0
Food 1.4 1.5 14.2
Energy -0.8 -4.1 10.0
Core CPI (excl. Food and Energy) 1.7 1.7 75.8
Housing 2.2 1.9 37.9
Transportation 2.6 2.5 10.7
Medical Care 2.2 2.7 6.5
Recreation 0.8 0.6 6.4
Education & Communication 1.3 1.5 6.1
Apparel 0.2 0.3 3.6
Other Goods & Services 1.8 1.8 3.5
Beverages 1.6 1.8 0.9
Seasonally adjusted values, as of 05/31/2013
Sources: Bloomberg L.P., BMO Global Asset Management
Economy
8 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
Savings Rate and Debt
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Dec 0
5
Jun 0
6
Dec 0
6
Jun 0
7
Dec 0
7
Jun 0
8
Dec 0
8
Jun 0
9
Dec 0
9
Jun 1
0
Dec 1
0
Jun 1
1
Dec 1
1
Jun 1
2
Dec 1
2
Savin
gs R
ate
(%
)
2,200
2,300
2,400
2,500
2,600
2,700
2,800
2,900
Debt
U.S. Savings Rate
Total Consumer Debt
Sources: Bloomberg L.P., BMO Global Asset Management
40.1%
17.9%
10.9%
6.3%
24.8%Real Estate
Other Tangible
Deposits
Pension Funds
Other Financial
Assets
84.0%
11.2%
4.8%Other Liabilities
Mortgages
Net Worth
Consumer Balance Sheet
U.S. Consumer The U.S. savings rate nudged higher again in May, rising to 3.2% of disposable income. Despite its steady increase over the past few months, the savings rate is low compared to recent history, as higher income taxes in 2013 reduced disposable income. Despite higher consumer debt compared to December 2008, consumer balance sheets appear healthier, as indicated by an increase in net worth.
36.3%
15.5%
11.9%
7.1%
29.3%Real Estate
Other Tangible
Deposits
Pension Funds
Other Financial
Assets
Sources: Federal Reserve Bank, BMO Global Asset Management
12/31/2008 03/31/2013
Economy
79.3%
15.4%
5.2%Other Liabilities
Mortgages
Net Worth
Consumer Confidence
0
20
40
60
80
100
120
Dec 0
5
Jun 0
6
Dec 0
6
Jun 0
7
Dec 0
7
Jun 0
8
Dec 0
8
Jun 0
9
Dec 0
9
Jun 1
0
Dec 1
0
Jun 1
1
Dec 1
1
Jun 1
2
Dec 1
2
Jun 1
3
Ind
ex L
evel
Univ. Of Michigan Survey of Consumer Confidence Sentiment
Conference Board Consumer Confidence Index
Sources: Bloomberg L.P., BMO Global Asset Management
9 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
U.S. Home Prices
-26%
-53%
-43%
-42%
-40%
-34%
-32%
-30%
-30%
-26%
-26%
-24%
-24%
-22%
-18%
-17%
-17%
-10%
-6%
-1%
0%
12%
22%
13%
22%
11%
20%
9%
15%
19%
24%
15%
21%
3%
7%
5%
13%
11%
8%
7%
10%
7%
S&P/Case-Shiller Home Price Index
Las Vegas NV
Miami FL
Phoenix AZ
Tampa FL
Detroit MI
Chicago IL
San Diego CA
Los Angeles CA
San Francisco CA
Minneapolis MN
Atlanta GA
New York NY
Washington DC
Cleveland OH
Portland OR
Seattle WA
Boston MA
Charlotte NC
Denver CO
Dallas TX
Apr 2013 vs. Peak (Jul 2006)
Apr 2013 vs. Apr 2012
Sources: Bloomberg L.P., BMO Global Asset Management
Housing Affordability Index and Existing Home Sales
80
100
120
140
160
180
200
220
Dec 9
8
Dec 9
9
Dec 0
0
Dec 0
1
Dec 0
2
Dec 0
3
Dec 0
4
Dec 0
5
Dec 0
6
Dec 0
7
Dec 0
8
Dec 0
9
Dec 1
0
Dec 1
1
Dec 1
2
Afford
ability
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
Sale
s (
mill u
nits
)
Housing Affordability Index
Existing Homes Sales
Sources: Bloomberg L.P., BMO Global Asset Management
Homebuilders Sentiment and Building Permits
0
10
20
30
40
50
60
70
Dec 0
5
Jun 0
6
Dec 0
6
Jun 0
7
Dec 0
7
Jun 0
8
Dec 0
8
Jun 0
9
Dec 0
9
Jun 1
0
Dec 1
0
Jun 1
1
Dec 1
1
Jun 1
2
Dec 1
2
Build
ers
Sentim
ent
0
500
1,000
1,500
2,000
2,500
Perm
its (
thousand u
nits
)Homebuilders Sentiment
Building Permits
Sources: Bloomberg L.P., BMO Global Asset Management
U.S. Housing Market Residential real estate prices increased in April by 12.1% on a year-over-year basis, at the highest pace since the price peaked in July 2006. Home prices increased across the nation, in many cases at a double-digit pace over the past 12 months, but remain below their 2006 high. Thinning inventories and rising home prices pushed homebuilders’ confidence higher in May.
Economy
10 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
Job Gain/Losses
-1,100
-900
-700
-500
-300
-100
100
300
500
700
Dec 0
6
Jun 0
7
Dec 0
7
Jun 0
8
Dec 0
8
Jun 0
9
Dec 0
9
Jun 1
0
Dec 1
0
Jun 1
1
Dec 1
1
Jun 1
2
Dec 1
2
Month
ly (
thousand jo
bs)
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
Cum
ula
tive (
mill jo
bs)
Monthly
Cumulative
Sources: Bloomberg L.P., BMO Global Asset Management
Payrolls Change by Industry
-1%
14%
10%
5%
3%
0%
-1%
-2%
-2%
-3%
-4%
-5%
-10%
-12%
-20%
2%
1%
2%
3%
3%
1%
1%
1%
2%
0%
1%
1%
1%
0%
3%
Total Non-Farm Payrolls
Mining
Education and Health Services
Leisure and Hospitality
Professional and Business Services
Utilities
Other Services
Transportation and Warehousing
Retail
Govt Payrolls
Wholesale
Finance, Insurance, and Real Estate
Information
Manufacturing
Construction
5-Yr Payroll Change
1-Yr Payroll Change
Sources: Bloomberg L.P., BMO Global Asset Management
As of 05/31/2013
U.S. Job Gains/Losses The economy added an average of 189,000 jobs in the first five months of 2013, slightly more than the 2012 average of 183,000 jobs per month. However, the pace was significantly below the average of 205,000 jobs recorded in the first five months of 2012. Initial jobless claims in June remained near a post-recession low.
Jobless Claims
250
300
350
400
450
500
550
600
650
700
Dec 0
6
Jun 0
7
Dec 0
7
Jun 0
8
Dec 0
8
Jun 0
9
Dec 0
9
Jun 1
0
Dec 1
0
Jun 1
1
Dec 1
1
Jun 1
2
Dec 1
2
Jun 1
3
Initi
al C
laim
s
(4 w
eek a
vg, in
thousands)
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
Contin
uin
g C
laim
s (
thousands)
Continuing Claims
Initial Jobless Claims
Sources: Bloomberg L.P., BMO Global Asset Management
Economy
11 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
Unemployment Rate
Worst 10 States
13.4
9.5
9.1
9.1
8.9
8.8
8.6
8.6
8.5
8.4
Puerto Rico
Nevada
Mississippi
Illinois
Rhode Island
North Carolina
New Jersey
California
Washington D.C.
Michigan
Sources: Bloomberg L.P., BMO Global Asset Management
Best 10 States
3.2
3.8
4.0
4.1
4.6
4.6
4.6
4.7
5.0
5.3
North Dakota
Nebraska
South Dakota
Vermont
Iow a
Utah
Wyoming
Haw aii
Oklahoma
Minnesota
05/31/2013
05/31/2012
Sources: Bloomberg L.P., BMO Global Asset Management
Unemployment Rate and Duration
3
4
5
6
7
8
9
10
11
12
Dec 7
1
Dec 7
6
Dec 8
1
Dec 8
6
Dec 9
1
Dec 9
6
Dec 0
1
Dec 0
6
Dec 1
1
Unem
plo
ym
ent R
ate
(%
) .
5
10
15
20
25
30
35
40
45
Dura
tion (
weeks)
Recession
Avg. Unemployment Duration
Unemployment Rate
Sources: Bloomberg L.P., BMO Global Asset Management
U.S. Unemployment The unemployment rate increased to 7.6% in May, from 7.5% in April. While unemployment duration is significantly below its peak of 40.7 weeks reached at the end of 2011, it remains stubbornly high, at 36.9 weeks. Private employment continues its steadily increasing trend which began in early 2010, while government employment has seen the effect of budget cuts.
Government and Private Employment
19.0
19.5
20.0
20.5
21.0
21.5
22.0
22.5
23.0
23.5
Dec 9
5
Dec 9
7
Dec 9
9
Dec 0
1
Dec 0
3
Dec 0
5
Dec 0
7
Dec 0
9
Dec 1
1
Govern
ment E
mplo
ym
ent (m
ill)
.
95
100
105
110
115
120
Private
Em
plo
ym
ent (m
ill)
.
Private Employment
Government Employment
Sources: Bloomberg L.P., BMO Global Asset Management
Economy
12 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
Other U.S. Economic Indicators Leading economic indicators have shown mixed results: the ECRI remained relatively flat in June, while CFNAI plunged in May, to the lowest level in eight months, and consumer expectations improved in May. Building permits corrected in June, after a large jump in May, which was likely prompted by sustained price improvement in the housing market.
Economic Cycle Research Institute (ECRI) Weekly Leading Index
-40
-30
-20
-10
0
10
20
30
Dec 8
7
Dec 8
9
Dec 9
1
Dec 9
3
Dec 9
5
Dec 9
7
Dec 9
9
Dec 0
1
Dec 0
3
Dec 0
5
Dec 0
7
Dec 0
9
Dec 1
1
Index G
row
th (
%)
Recession
ECRI US Weekly Leading Grow th Rate
Sources: w w w .businesscycle.com, BMO Global Asset Management
Conference Board Leading Index Growth
-25
-20
-15
-10
-5
0
5
10
15
Dec 8
7
Dec 8
9
Dec 9
1
Dec 9
3
Dec 9
5
Dec 9
7
Dec 9
9
Dec 0
1
Dec 0
3
Dec 0
5
Dec 0
7
Dec 0
9
Dec 1
1
Index G
row
th (
%)
Recession
LEI CHNG (YoY)
Sources: Bloomberg L.P., BMO Global Asset Management
Chicago Fed National Activity Index (CFNAI) and Credit Spreads
(3-month moving average for CFNAI)
-4.5
-3.5
-2.5
-1.5
-0.5
0.5
1.5
Dec 9
0
Dec 9
2
Dec 9
4
Dec 9
6
Dec 9
8
Dec 0
0
Dec 0
2
Dec 0
4
Dec 0
6
Dec 0
8
Dec 1
0
Dec 1
2
CF
NA
I M
A3
Recession
CFNAI 3-Mo MA
-0.7 Line
Sources: Chicago Federal Reserve Bank, Barclays Capital, BMO Global Asset Management
Leading Index Selected Components
0
10
20
30
40
50
60
70
80
90
Dec 0
7
Jun 0
8
Dec 0
8
Jun 0
9
Dec 0
9
Jun 1
0
Dec 1
0
Jun 1
1
Dec 1
1
Jun 1
2
Dec 1
2
Jun 1
3
Consum
er
Expecta
tions
0
200
400
600
800
1000
1200
1400
Build
ing P
erm
its
Consumer Expectations
Building Permits
Sources: Conference Board, BMO Global Asset Management
Economy
13 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
U.S. Fixed Investment
65
265
465
665
865
1,065
1,265
1,465
1,665
1,865
Dec 8
0
Dec 8
2
Dec 8
4
Dec 8
6
Dec 8
8
Dec 9
0
Dec 9
2
Dec 9
4
Dec 9
6
Dec 9
8
Dec 0
0
Dec 0
2
Dec 0
4
Dec 0
6
Dec 0
8
Dec 1
0
Dec 1
2
($ b
illio
ns)
Recession
Investment (ex. Housing)
Housing
Sources: Bloomberg L.P., BMO Global Asset Management
ISM Purchasing Managers Index (PMI)
30
35
40
45
50
55
60
65
70
75
Dec 8
0
Dec 8
2
Dec 8
4
Dec 8
6
Dec 8
8
Dec 9
0
Dec 9
2
Dec 9
4
Dec 9
6
Dec 9
8
Dec 0
0
Dec 0
2
Dec 0
4
Dec 0
6
Dec 0
8
Dec 1
0
Dec 1
2
Index L
evel
Recession
ISM Manufacturing PMI
ISM Non-Manufacturing PMI
Sources: Institute for Supply Management, Bloomberg L.P., BMO Global Asset
Management
U.S. Corporate Profits
65
265
465
665
865
1,065
1,265
1,465
1,665
Dec 8
0
Dec 8
2
Dec 8
4
Dec 8
6
Dec 8
8
Dec 9
0
Dec 9
2
Dec 9
4
Dec 9
6
Dec 9
8
Dec 0
0
Dec 0
2
Dec 0
4
Dec 0
6
Dec 0
8
Dec 1
0
Dec 1
2
($ b
illio
ns)
Recession
U.S. Corporate Profits
Sources: Bloomberg L.P., BMO Global Asset Management
U.S. Business Activity Housing investment level, while still low, shows the beginning of a recovery. Other fixed investment activity has steadily increased to pre-recession levels. Capacity utilization has been trending slightly below its average during non-recessionary periods. Corporations continue to report solid profits.
Economy
Capacity Utilization
65
70
75
80
85
90
Dec 8
0
Dec 8
2
Dec 8
4
Dec 8
6
Dec 8
8
Dec 9
0
Dec 9
2
Dec 9
4
Dec 9
6
Dec 9
8
Dec 0
0
Dec 0
2
Dec 0
4
Dec 0
6
Dec 0
8
Dec 1
0
Dec 1
2
Uti
lizati
on
(%
)
Recession
% Capacity Utilization
Avg. Capacity Utilization During Non-Recessionary Periods
Sources: Bloomberg L.P., BMO Global Asset Management
14 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
U.S. Banks Tightening or Easing Credit Standards
(based on Fed survey)
0
10
20
30
40
50
60
70
80
90
2Q
2007
3Q
2007
4Q
2007
1Q
2008
2Q
2008
3Q
2008
4Q
2008
1Q
2009
2Q
2009
3Q
2009
4Q
2009
1Q
2010
2Q
2010
3Q
2010
4Q
2010
1Q
2011
2Q
2011
3Q
2011
4Q
2011
1Q
2012
2Q
2012
3Q
2012
4Q
2012
(%)
% Tightening
% Easing
Sources: Bloomberg L.P., BMO Global Asset Management
Net % of U.S. Lenders Reporting Higher Demand for Commercial
and Industrial Loans
-80
-60
-40
-20
0
20
40
60
Dec 0
3
Jun 0
4
Dec 0
4
Jun 0
5
Dec 0
5
Jun 0
6
Dec 0
6
Jun 0
7
Dec 0
7
Jun 0
8
Dec 0
8
Jun 0
9
Dec 0
9
Jun 1
0
Dec 1
0
Jun 1
1
Dec 1
1
Jun 1
2
Dec 1
2
(%)
Large and Medium Size Firms
Small Firms
Sources: Bloomberg L.P., BMO Global Asset Management
U.S. Lending and Banking Activity Demand for commercial and industrial loans increased in the last quarter of 2012, as banks have been easing credit standards. While monetary stimulus continues, banks’ excess reserves have been trending slightly higher, which limit a portion of funds from flowing into the economy. Credit standards continue to be favorable for borrowers.
U.S. Commercial Banks Assets
0
2,000
4,000
6,000
8,000
10,000
12,000
Dec 0
3
Dec 0
4
Dec 0
5
Dec 0
6
Dec 0
7
Dec 0
8
Dec 0
9
Dec 1
0
Dec 1
1
Dec 1
2
($ billions)
-15%
-10%
-5%
0%
5%
10%
15%
Gro
wth
Loans & Leases
Total Assets
Loans & Leases Grow th (YoY)
Sources: Bloomberg L.P., BMO Global Asset Management
Monetary Base, Excess Reserves and Monetary Growth
0
1,000
2,000
3,000
4,000
Jan 0
8
Jul 0
8
Jan 0
9
Jul 0
9
Jan 1
0
Jul 1
0
Jan 1
1
Jul 1
1
Jan 1
2
Jul 1
2
Jan 1
3
$Bil.
0
2
4
6
8
10
12
M2 G
row
th (
%)
Monetary Base ($Bil)
Excess Reserves
M2 YoY % Grow th
Sources: Bloomberg, Federal Reserve, BMO Global Asset Management
Economy
15 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
Developed Countries CPI (YoY %)
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
World Europe G10 Countries
U.S. Japan
Sources: Bloomberg L.P., BMO Global Asset Management
Emerging Markets CPI (YoY %)
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
World BRIC U.S. China
Sources: Bloomberg L.P., BMO Global Asset Management
World Economic Growth and Inflation Eurozone economies slipped into recession in the first quarter of 2012, Germany being the last one to show a contraction in the first quarter of 2013. China posted 4.1% GDP growth in the first quarter of 2013, the slowest YoY growth since third quarter 2011. World inflation has been declining slightly since the end of third quarter 2011, but CPI in the BRIC economies inched up recently.
Real GDP Growth for Developed Countries
-12.5
-10.0
-7.5
-5.0
-2.5
0.0
2.5
5.0
7.5
2006
2007
2008
2009
2010
2011
2012
YoY
GD
P G
row
th (
%)
Eurozone Germany France Japan
Sources: Bloomberg L.P., BMO Global Asset Management
Real GDP Growth for BRIC Countries
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
2006
2007
2008
2009
2010
2011
2012
YoY
GD
P G
row
th (
%)
Brazil Russia India China
Sources: Bloomberg L.P., BMO Global Asset Management
Economy
16 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
Eurozone
Percentage Debt to GDP by Country on 12/31/2012
73.6
18.4
38.6
45.3
52.4
53.5
53.8
68.7
74.6
81.7
85.3
88.7
89.9
99.6
118.0
118.9
126.1
161.3
UNITED STATES
LUXEMBOURG
SWEDEN
DENMARK
SWITZERLAND
FINLAND
POLAND
NETHERLANDS
AUSTRIA
GERMANY
SPAIN
BRITAIN
FRANCE
BELGIUM
IRELAND
ICELAND
ITALY
GREECE
Sources: Bloomberg L.P., BMO Global Asset Management
European Economies Many European economies are struggling, hampered by recession, high debt-to-GDP ratios and high sovereign yields compared to the rest of the developed world. Recent government yields have started to show more concern about the European governments’ ability to restrain spending.
European Governments
10-yr Bond Yields
0
1
2
3
4
5
6
7
8
Dec 0
7
Apr
08
Aug 0
8
Dec 0
8
Apr
09
Aug 0
9
Dec 0
9
Apr
10
Aug 1
0
Dec 1
0
Apr
11
Aug 1
1
Dec 1
1
Apr
12
Aug 1
2
Dec 1
2
Apr
13
(%) Germany
Italy
Spain
Sources: Bloomberg L.P., BMO Global Asset Management
European Governments
10-yr Bond Yields
0
5
10
15
20
25
30
35
Dec 0
7
Apr
08
Aug 0
8
Dec 0
8
Apr
09
Aug 0
9
Dec 0
9
Apr
10
Aug 1
0
Dec 1
0
Apr
11
Aug 1
1
Dec 1
1
Apr
12
Aug 1
2
Dec 1
2
Apr
13
(%)
Germany
Greece
Ireland
Portugal
Greek debt restructured
Sources: Bloomberg L.P., BMO Global Asset Management
Economy
17 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
European Economic Sentiment Indicators
60
70
80
90
100
110
120
Dec 0
4
Mar
05
Jun 0
5
Sep 0
5
Dec 0
5
Mar
06
Jun 0
6
Sep 0
6
Dec 0
6
Mar
07
Jun 0
7
Sep 0
7
Dec 0
7
Mar
08
Jun 0
8
Sep 0
8
Dec 0
8
Mar
09
Jun 0
9
Sep 0
9
Dec 0
9
Mar
10
Jun 1
0
Sep 1
0
Dec 1
0
Mar
11
Jun 1
1
Sep 1
1
Dec 1
1
Mar
12
Jun 1
2
Sep 1
2
Dec 1
2
Mar
13
Jun 1
3
Index L
evel
Eurozone Economic Sentiment
PortugalItaly
Greece
SpainGermany
France
Sources: Bloomberg L.P., BMO Global Asset Management
European Countries Purchasing Managers Index (PMI)
30
35
40
45
50
55
60
65
Dec 0
4
Jun 0
5
Dec 0
5
Jun 0
6
Dec 0
6
Jun 0
7
Dec 0
7
Jun 0
8
Dec 0
8
Jun 0
9
Dec 0
9
Jun 1
0
Dec 1
0
Jun 1
1
Dec 1
1
Jun 1
2
Dec 1
2
Index L
evel
European Countries PMI Output Index
Sources: Bloomberg L.P., BMO Global Asset Management
European Economies Sentiment indicators from several European countries improved in May, following a couple of months of decline across several countries. The European Central Bank indicates there has been a nominal improvement in demand for commercial loans.
Economy
European Central Bank Survey
Change in Demand for Loans to Enterprises
-50
-40
-30
-20
-10
0
10
20
30
Dec 0
3
Dec 0
4
Dec 0
5
Dec 0
6
Dec 0
7
Dec 0
8
Dec 0
9
Dec 1
0
Dec 1
1
Dec 1
2
Index L
evel
ECB Survey - Loan Demand
Sources: Bloomberg L.P., BMO Global Asset Management
18 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
BRIC Economies Over the past 10 years, emerging market economies boomed. China grew by approximately 50%, while other Asian and BRIC economies doubled in size. As the world economies slow, near-term growth prospects are clearly much lower.
BRIC Countries
Percentage Debt to GDP by Country on 12/31/2012
54.9
12.2
51.9
31.7
64.2
73.6
BRAZIL
RUSSIA
INDIA
CHINA
ENTIRE WORLD
UNITED STATES
Sources: Bloomberg L.P., BMO Global Asset Management
BRIC Governments
10-yr Bond Yields
0
2
4
6
8
10
12
14
Apr
10
Jul 1
0
Oct 10
Jan 1
1
Apr
11
Jul 1
1
Oct 11
Jan 1
2
Apr
12
Jul 1
2
Oct 12
Jan 1
3
Apr
13
(%)
Brazil Russia India China
Sources: Bloomberg L.P., BMO Global Asset Management
Real GDP
100
120
140
160
180
200
220
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
GD
P (
4Q
02 =
100)
.
US
World
BRICS
China
Sources: Bloomberg L.P., BMO Global Asset Management
Economy
19 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
U.S. Dollar Strength Relative to a Basket of Currencies
60
70
80
90
100
110
120
130
Dec
90
Dec
92
Dec
94
Dec
96
Dec
98
Dec
00
Dec
02
Dec
04
Dec
06
Dec
08
Dec
10
Dec
12
Index L
evel
Sources: Bloomberg L.P., BMO Global Asset Management
U.S. Dollar Strength Relative to Euro
0.80
0.90
1.00
1.10
1.20
1.30
1.40
1.50
1.60
1.70
Dec 9
0
Dec 9
2
Dec 9
4
Dec 9
6
Dec 9
8
Dec 0
0
Dec 0
2
Dec 0
4
Dec 0
6
Dec 0
8
Dec 1
0
Dec 1
2
US
D/E
uro
Sources: Bloomberg L.P., BMO Global Asset Management
Stronger Dollar
Stronger Euro
U.S. Dollar Strength Relative to Chinese Yuan
4.0
5.0
6.0
7.0
8.0
9.0
10.0
11.0
Dec 9
0
Dec 9
2
Dec 9
4
Dec 9
6
Dec 9
8
Dec 0
0
Dec 0
2
Dec 0
4
Dec 0
6
Dec 0
8
Dec 1
0
Dec 1
2
Yuan/U
SD
Sources: Bloomberg L.P., BMO Global Asset Management
Stronger Yuan
Stronger Dollar
U.S. Dollar Strength Relative to Japanese Yen
60
70
80
90
100
110
120
130
140
150
Dec 9
0
Dec 9
2
Dec 9
4
Dec 9
6
Dec 9
8
Dec 0
0
Dec 0
2
Dec 0
4
Dec 0
6
Dec 0
8
Dec 1
0
Dec 1
2
Yen/U
SD
Sources: Bloomberg L.P., BMO Global Asset Management
Stronger Yen
Stronger Dollar
Currencies Announcements regarding more aggressive monetary and fiscal stimuli from both the Japanese government and the Japanese Central Bank have pushed the Japanese yen down over 14% this year and down 29% since the end of 2011.
Economy
20 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
Total returns are based on Russell-style indices
performance and include dividends. Graphs depict price
levels only. Sources: Bloomberg L.P., BMO Global
Asset Management.
Investment Style Performance Despite June’s correction, the U.S., equity markets’ performance remains strong year-to-date. Small cap growth stocks have outperformed all other U.S. stock market segments through June, posting a 17.4% total return YTD. Value has outperformed growth year-to-date in the large and mid cap spaces.
Large Cap Stocks
550
600
650
700
750
800
850
900
950
Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13
Index L
evel
Russell 1000® Index2011: 1.5% TR
2012 : 16.4% TR
Sources: Bloomberg L.P., BMO Global Asset Management
YTD 2013 : 13.9% TR
Small Cap Stocks
600
650
700
750
800
850
900
950
1,000
1,050
1,100
Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13
Index L
evel
Russell 2000® Index
Sources: Bloomberg L.P., BMO Global Asset Management
2011: -4.1% TR 2012 : 16.3% TR
YTD 2013 : 15.9% TR
YTD6/30/2013
Value Blend Growth
Larg
e
15.9 13.9 11.8
Mid 16.1 15.5 14.7
Sm
all
14.4 15.9 17.4
Total Returns (%)
2012
Value Blend Growth
Larg
e
17.5 16.4 15.3
Mid 18.5 17.3 15.8
Sm
all
18.1 16.3 14.6
Stocks
21 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
Total returns are based on Russell-style indices
performance and include dividends. Total returns are
cumulative returns for the period, not annualized. Peak
market date is 10/09/2007. Low market date is
03/09/2009. Graphs depict price levels only. Sources:
Bloomberg L.P., BMO Global Asset Management.
Investment Style Performance All equity indices across styles and market caps have more than doubled their levels since their post-crisis lows. The annualized total returns since prior peaks are positive across market caps and styles, as the S&P 500® and the Dow Jones Industrial Average indices had reached record-high levels before the June swoon.
Total Returns (%)
As of 06/30/2013
Small Cap Stocks
300
400
500
600
700
800
900
1,000
1,100
Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12
Index L
evel
Russell 2000® Index
Sources: Bloomberg L.P., BMO Global Asset Management
Since 10/09/2007
Peak: 25.4% TR
Since 03/09/2009
Low: 202.3% TR
Large Cap Stocks
350
450
550
650
750
850
950
Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12
Index L
evel
Russell 1000® Index
Since 10/09/2007
Peak: 18.1% TR
Since 03/09/2009
Low: 164.8% TR
Sources: Bloomberg L.P., BMO Global Asset Management
10/9/2007
Value Blend Growth
Larg
e
9.6 18.1 26.0
Mid 27.7 28.7 28.0
Sm
all
20.8 25.4 29.3
Since Peak
3/9/2009
Value Blend Growth
Larg
e
173.2 164.8 157.0
Mid 226.1 210.5 196.0
Sm
all
198.8 202.3 205.2
Since Low
Stocks
22 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
Investment Style Valuations Current multiples of U.S. large cap companies remain below their historical norms and appear attractive relative to mid and small cap companies’ P/Es. Growth stocks are cheaper than value stocks, but they appear to be losing momentum.
*Data begins in June 1988. Data based on Russell-
style indices. Earnings are estimated earnings for the
next 12 months (NTM). Sources: FactSet, BMO
Global Asset Management.
Value vs. Growth Price to NTM Earnings
0.3x
0.4x
0.5x
0.6x
0.7x
0.8x
0.9x
1.0x
1.1x
Jun 88 Jun 90 Jun 92 Jun 94 Jun 96 Jun 98 Jun 00 Jun 02 Jun 04 Jun 06 Jun 08 Jun 10 Jun 12
Valu
e P
E /
Gro
wth
PE
Russell 1000® Value PE / Russell 1000® Growth PE
Value / Growth Avg. since Jun '88Growth Cheaper
Value Cheaper
Sources: FactSet, BMO Global Asset Management
Small vs. Large Price to NTM Earnings
0.4x
0.5x
0.6x
0.7x
0.8x
0.9x
1.0x
1.1x
1.2x
1.3x
1.4x
Jun 88 Jun 90 Jun 92 Jun 94 Jun 96 Jun 98 Jun 00 Jun 02 Jun 04 Jun 06 Jun 08 Jun 10 Jun 12
Sm
all
Cap P
E /
Larg
e C
ap P
E .
Russell 2000® PE / Russell 1000® PE
Small / Large Avg. since Jun '88
Sources: FactSet, BMO Global Asset Management
Large Cap Cheaper
Small Cap Cheaper
C u rren t P /E
(A v g . P /E )Value Blend Growth
Larg
e 12.8
(13.4)
14.0
(15.9)
15.6
(19.6)
Mid 14.0
(13.7)
15.4
(15.5)
17.4
(19.4)
Sm
all
15.0
(13.6)
16.1
(15.4)
17.5
(17.9)
C u rren t P E as
% of A v g P EValue Blend Growth
Larg
e
95.0% 88.1% 79.5%
Mid 102.8% 99.3% 89.3%
Sm
all
109.9% 104.5% 97.8%
0.3x
0.4x
0.5x
0.6x
0.7x
0.8x
0.9x
1.0x
1.1x
Jun 88 Jun 90 Jun 92 Jun 94 Jun 96 Jun 98 Jun 00 Jun 02 Jun 04 Jun 06 Jun 08 Jun 10 Jun 12
P/E vs. Long Term Average*
As of 06/30/2013
Stocks
23 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
As of
06/30/2013Russell Index
Materials and
ProcessingUtilities
Consumer
StaplesEnergy
Producer
DurablesHealth Care
Consumer
DiscretionaryFinancials Technology
MTD -1.4% -4.2% 1.4% -0.2% -2.1% -1.7% -0.8% 0.4% -1.3% -3.8%
YTD 2013 13.9% 3.7% 11.5% 15.9% 9.5% 14.5% 20.6% 18.8% 18.5% 4.7%
2012 16.4% 18.0% 7.8% 10.0% 4.2% 16.3% 19.6% 25.8% 27.4% 12.5%
MTD -0.5% -4.7% 0.4% 2.3% -3.7% -0.7% 0.1% -0.2% -0.1% 0.7%
YTD 2013 15.9% 3.4% 11.5% 22.8% 10.9% 16.3% 21.5% 23.3% 13.6% 15.7%
2012 16.3% 28.2% 6.1% 10.9% -3.6% 16.6% 17.7% 24.1% 21.8% 10.3%
LA
RG
E C
AP
EQ
UIT
IES
SM
AL
L C
AP
EQ
UIT
IES
Russell 1000® Index Composition
4.2%5.7%
11.1%
11.9%15.4%
18.6%
15.0%
9.6%
8.4%
Russell 2000® Index Composition
6.9%3.5%
13.4%
12.7%16.2%
23.4%
13.5%
3.9%
6.4%
Sources: Bloomberg L.P., BMO Global Asset Management . Sector break-down based on Russell categories.
Sector Performance Following a weak performance in May, the large-cap Utilities sector regained its position as the top performer in June. Health Care and Consumer Discretionary took the lead on a year-to-date basis in June in the large cap space with Financials close behind. Small cap stocks outperformed large cap stocks in June and year-to-date.
Materials and Processing
Utilities
Consumer Staples
Energy
Producer Durables
Health Care
Consumer Discretionary
Financials
Technology
Stocks
24 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
Dividend Yield
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Dec 8
2
Dec 8
4
Dec 8
6
Dec 8
8
Dec 9
0
Dec 9
2
Dec 9
4
Dec 9
6
Dec 9
8
Dec 0
0
Dec 0
2
Dec 0
4
Dec 0
6
Dec 0
8
Dec 1
0
Dec 1
2
(%)
Russell 1000® Div Yld
Average Div Yld
Avg +/- Std Dev Div Yld
5-Yr Tsy Bond
Sources: FactSet, Bloomberg L.P., BMO Global Asset Management
Year-End Consensus EPS Estimate for the S&P 500® Index
97.02011 YE
2012 YE
102.2
110.1
2013 YE122.4
2014 YE
90
95
100
105
110
115
120
125
130
Dec 0
9
Mar
10
Jun 1
0
Sep 1
0
Dec 1
0
Mar
11
Jun 1
1
Sep 1
1
Dec 1
1
Mar
12
Jun 1
2
Sep 1
2
Dec 1
2
Mar
13
($)/
Share
Sources: FactSet, BMO Global Asset Management
Implied Stock Market Volatility and the S&P 500® Index
600
800
1,000
1,200
1,400
1,600
1,800
Dec 0
7
Mar
08
Jun 0
8
Sep 0
8
Dec 0
8
Mar
09
Jun 0
9
Sep 0
9
Dec 0
9
Mar
10
Jun 1
0
Sep 1
0
Dec 1
0
Mar
11
Jun 1
1
Sep 1
1
Dec 1
1
Mar
12
Jun 1
2
Sep 1
2
Dec 1
2
Mar
13
S&
P 5
00®
Index
0
10
20
30
40
50
60
70
80
90
VIX
Index
S&P 500® Index
VIX Index
Sources: Bloomberg L.P., BMO Global Asset Management
Other Stock Valuations and Metrics Stocks still offer an attractive dividend yield when compared to U.S. Treasury bonds. The estimated EPS for 2013 translates into earnings growth of 9% versus year-end 2012. In 2012, earnings were up 5%.
U.S. Large Cap Stocks Price to NTM Earnings
8
10
12
14
16
18
20
22
24
26
Jun 8
8
Jun 9
0
Jun 9
2
Jun 9
4
Jun 9
6
Jun 9
8
Jun 0
0
Jun 0
2
Jun 0
4
Jun 0
6
Jun 0
8
Jun 1
0
Jun 1
2
Larg
e C
ap P
E
Russell 1000® PE
Avg. Large Cap PE since Jun '88
Sources: FactSet, BMO Global Asset Management
Stocks
25 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
2.0
4.2
2.23.7
9.7
2.6
9.8
7.7
15.8
-1.0 -0.6-1.4 -1.0
-2.6-1.5
-4.3
1.4
-3.2-2.8-1.5-1.1
-0.8-2.1 -2.0
-3.4-2.4-1.3
-6.0
-3.0
0.0
3.0
6.0
9.0
12.0
15.0
18.0
U.S. Treasury U.S. Agg. Agencies ABS CMBS MBS Corporates Non-Corp HY
Bo
nd
s T
ota
l R
etu
rns (
%)
12/31/2012 1-Mo YTD (06/30/2013)
Sources: Barclays Capital, BMO Global Asset Management
U.S. Bond Market Performance With the exception of High Yield’s 1.4% return year-to-date, the uptick in yields has caused all bond sectors to post negative returns for June and year-to-date. June’s volatility has caused Corporates to underperform the U.S. Treasury index month-to-date and year-to-date.
Bonds
22797
246
841
91
734
547
1,394
-175 -165-33 -27-90 -118
-12-34
13
-36
NA
-35-155
-53-8
291
-51
-300
0
300
600
900
1,200
1,500
U.S. Treasury U.S. Agg. Agencies ABS CMBS MBS Corporates Non-Corp HY
Bo
nd
s E
xcess R
etu
rns v
s.
Tre
asu
ry B
on
ds
Wit
h S
imil
ar
Du
rati
on
(b
ps)
12/31/2012 1-Mo YTD (06/30/2013)
Sources: Barclays Capital, BMO Global Asset Management
26 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
Fed Funds Futures
- Market Expectations for the Fed Funds Rate -
0.0
0.2
0.4
0.6
0.8
Jun 1
2
Aug 1
2
Oct
12
Dec 1
2
Feb 1
3
Apr
13
Jun 1
3
Aug 1
3
Oct
13
Dec 1
3
Feb 1
4
Apr
14
Jun 1
4
Aug 1
4
Oct
14
Dec 1
4
Feb 1
5
Apr
15
Jun 1
5
Futures Expiration Date
(%)
6/28/2012
3/28/2013
6/28/2013
Target
Sources: Bloomberg L.P., BMO Global Asset Management
Treasury Yield Curve
0.0
1.0
2.0
3.0
4.0
3 m
o
6 m
o
2 y
r
5 y
r
10 y
r
20 y
r
30 y
r
(%)
12/31/2011
12/31/2012
06/30/2013
Sources: Bloomberg L.P., BMO Global Asset Management
U.S. Treasury Yields
0.0
1.5
3.0
4.5
6.0
Dec 0
5
Jun 0
6
Dec 0
6
Jun 0
7
Dec 0
7
Jun 0
8
Dec 0
8
Jun 0
9
Dec 0
9
Jun 1
0
Dec 1
0
Jun 1
1
Dec 1
1
Jun 1
2
Dec 1
2
(%) 3-Mo T-Bill
2-Yr Tsy Note
10-Yr Tsy Note
Sources: Bloomberg L.P., BMO Global Asset Management
U.S. Treasury Yields U.S. Treasury yields jumped again in June by 36 bps for the 10-yr maturity, which posted -2.6% return for the month. The 30-yr Treasury bond’s yield rose 22 bps and posted a total return of -3.4% for June.
Bonds
Implied Forecast of Treasury Yields from Futures Market
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
3 m
o
6 m
o
2 y
r
5 y
r
10 y
r
20 y
r
30 y
r
Yie
ld (
%)
Implied Yields from Futures Curve
for 03/31/2014
Yield Curve on 06/30/2013
Sources: Bloomberg L.P., BMO Global Asset Management
27 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
U.S. Investment Grade Corporates OAS
0
100
200
300
400
500
600
700
Ja
n 9
7
Ja
n 9
8
Ja
n 9
9
Ja
n 0
0
Ja
n 0
1
Ja
n 0
2
Ja
n 0
3
Ja
n 0
4
Ja
n 0
5
Ja
n 0
6
Ja
n 0
7
Ja
n 0
8
Ja
n 0
9
Ja
n 1
0
Ja
n 1
1
Ja
n 1
2
Ja
n 1
3
Avg (157 bps)
Avg - 1 Stdev (63 bps)
Avg + 1 Stdev (251 bps)
Avg + 2 Stdev (345 bps)
Sources: Barclays Capital, BMO Global Asset Management
The average and standard deviation are calculated using monthly data starting January 1997.
Bond Spreads Corporate spreads had been on a declining path since the uptick in May 2012, but spreads increased in June 2013. Spreads fell below the long-term average in September 2012 and remain there. High Yield spreads widened in June, as well.
Corporate Bonds OAS Level
(daily)
100
150
200
250
300
350
400
Ja
n 1
0
Ma
r 1
0
Ma
y 1
0
Ju
l 1
0
Se
p 1
0
No
v 1
0
Ja
n 1
1
Ma
r 1
1
Ma
y 1
1
Ju
l 1
1
Se
p 1
1
No
v 1
1
Ja
n 1
2
Ma
r 1
2
Ma
y 1
2
Ju
l 1
2
Se
p 1
2
No
v 1
2
Ja
n 1
3
Ma
r 1
3
Ma
y 1
3
Inve
stm
en
t G
rad
e O
AS
(b
ps)
400
450
500
550
600
650
700
750
800
850
900
Hig
h Y
ield
OA
S (
bp
s)
Corporates
Financials
HY
Sources: Barclays Capital, BMO Global Asset Management
Bonds
U.S. Credit OAS
0
100
200
300
400
500
600
Ja
n 9
7
Ja
n 9
8
Ja
n 9
9
Ja
n 0
0
Ja
n 0
1
Ja
n 0
2
Ja
n 0
3
Ja
n 0
4
Ja
n 0
5
Ja
n 0
6
Ja
n 0
7
Ja
n 0
8
Ja
n 0
9
Ja
n 1
0
Ja
n 1
1
Ja
n 1
2
Ja
n 1
3
Avg (146 bps)
Avg - 1 Stdev (64 bps)
Avg + 1 Stdev (228 bps)
Avg + 2 Stdev (311 bps)
Sources: Barclays Capital, BMO Global Asset Management
28 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
BBB rated U.S. Corporates OAS
0
100
200
300
400
500
600
700
800
Ja
n 9
7
Ja
n 9
8
Ja
n 9
9
Ja
n 0
0
Ja
n 0
1
Ja
n 0
2
Ja
n 0
3
Ja
n 0
4
Ja
n 0
5
Ja
n 0
6
Ja
n 0
7
Ja
n 0
8
Ja
n 0
9
Ja
n 1
0
Ja
n 1
1
Ja
n 1
2
Ja
n 1
3
Avg (202 bps)
Avg - 1 Stdev (87 bps)
Avg + 1 Stdev (317 bps)
Avg + 2 Stdev (431 bps)
Sources: Barclays Capital, BMO Global Asset Management
Emerging Markets OAS
0
100
200
300
400
500
600
700
800
900
1,000
Au
g 0
0
Au
g 0
1
Au
g 0
2
Au
g 0
3
Au
g 0
4
Au
g 0
5
Au
g 0
6
Au
g 0
7
Au
g 0
8
Au
g 0
9
Au
g 1
0
Au
g 1
1
Au
g 1
2
Avg (415 bps)Avg - 1 Stdev (215 bps)Avg + 1 Stdev (614 bps)Avg + 2 Stdev (814 bps)
Sources: Barclays Capital, BMO Global Asset Management
Emerging Markets Corporates OAS
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Au
g 0
0
Au
g 0
1
Au
g 0
2
Au
g 0
3
Au
g 0
4
Au
g 0
5
Au
g 0
6
Au
g 0
7
Au
g 0
8
Au
g 0
9
Au
g 1
0
Au
g 1
1
Au
g 1
2
Avg (519 bps)Avg - 1 Stdev (206 bps)
Avg + 1 Stdev (831 bps)Avg + 2 Stdev (1144 bps)
Sources: Barclays Capital, BMO Global Asset Management
The average and standard deviation are calculated using monthly data starting in January 1997 for the U.S. series, and starting in August 2000 for the Emerging Markets series.
Bond Spreads The trend of spreads tightening ended with June’s uptick across the market, although levels remain below long-term averages. Emerging market spreads on corporate debt also landed below their long-term average, where they remain despite the recent uptick.
U.S. High Yield Corporates OAS
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Ja
n 9
7
Ja
n 9
8
Ja
n 9
9
Ja
n 0
0
Ja
n 0
1
Ja
n 0
2
Ja
n 0
3
Ja
n 0
4
Ja
n 0
5
Ja
n 0
6
Ja
n 0
7
Ja
n 0
8
Ja
n 0
9
Ja
n 1
0
Ja
n 1
1
Ja
n 1
2
Ja
n 1
3
Avg (564 bps)
Avg - 1 Stdev (296 bps)
Avg + 1 Stdev (832 bps)
Avg + 2 Stdev (1100 bps)
Sources: Barclays Capital, BMO Global Asset Management
Bonds
29 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
AAA Municipals and Treasury Yield Curves
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
3 m
o
6 m
o
2 y
r
5 y
r
10
yr
20
yr
30
yr
Yie
ld (
%)
Municipals Curve on 06/30/2013
Treasury Curve on 06/30/2013
Sources: Bloomberg L.P., BMO Global Asset Management
AAA Municipals vs. Treasury Yields
0.0
0.5
1.0
1.5
2.0
2.5
De
c 0
5
Ju
n 0
6
De
c 0
6
Ju
n 0
7
De
c 0
7
Ju
n 0
8
De
c 0
8
Ju
n 0
9
De
c 0
9
Ju
n 1
0
De
c 1
0
Ju
n 1
1
De
c 1
1
Ju
n 1
2
De
c 1
2
Ju
n 1
3
Ratio of 10-Yr AAA Muni Yield to 10-Yr Treasury Yield
Ratio of 30-Yr AAA Muni Yield to 30-Yr Treasury Yield
Ratio of 1
Sources: Bloomberg, L.P., BMO Global Asset Management
Yield Spread vs. 10-year AAA Municipal Bond
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
De
c 0
0
De
c 0
1
De
c 0
2
De
c 0
3
De
c 0
4
De
c 0
5
De
c 0
6
De
c 0
7
De
c 0
8
De
c 0
9
De
c 1
0
De
c 1
1
De
c 1
2
A Spread
BBB Spread
Sources: Bloomberg, L.P., BMO Global Asset Management
AAA Municipals Bond Yields
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
De
c 0
0
De
c 0
1
De
c 0
2
De
c 0
3
De
c 0
4
De
c 0
5
De
c 0
6
De
c 0
7
De
c 0
8
De
c 0
9
De
c 1
0
De
c 1
1
De
c 1
2
10-Yr AAA Muni
30-Yr AAA Muni
Sources: Bloomberg, L.P., BMO Global Asset Management
Municipal Bonds Reflecting the retail nature of the municipal bond market, tax-exempt yields moved slightly higher relative to Treasury yields. Bonds
30 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
* The average OAS and standard deviation of OAS for the Emerging Market indices are based on monthly data starting in August 2000.
Sources: Barclays Capital, BMO Global Asset Management
Bond Market Snapshot Bonds
6/30/2013U.S.
AggregateU.S. Treasury
1-10 yr
Municipals
Inv. Grade
CorporatesFinance Industrial MBS
High
Yield
Emerging
Markets
(EM)
EM
Corporates
Global IG
Bonds ex-US
MTD Total Return -1.55 -1.10 -1.61 -2.76 -2.45 -2.88 -0.96 -2.62 -4.47 -4.26 -0.85
3-Month Total Return -2.32 -1.92 -1.83 -3.31 -2.78 -3.48 -1.96 -1.44 -5.14 -4.96 -3.08
YTD Total Return -2.44 -2.11 -1.34 -3.41 -1.93 -4.14 -2.01 1.42 -6.52 -4.84 -6.48
12-Month Total Return -0.69 -1.64 0.34 1.36 4.98 -0.34 -1.10 9.49 3.09 4.09 -3.40
MTD Excess Return -0.36 NA NA -1.18 -1.21 -1.18 0.13 -1.65 -2.89 -2.89 -0.28
3-Month Excess Return -0.34 NA NA -0.54 -0.63 -0.48 -0.38 0.14 -2.34 -2.58 0.38
YTD Excess Return -0.33 NA NA -0.27 0.35 -0.70 -0.51 2.91 -3.55 -2.40 0.60
12-Month Excess Return 0.98 NA NA 4.06 6.74 2.69 -0.05 10.41 5.47 5.88 2.03
Yield to Maturity 2.36 1.23 1.87 3.36 3.08 3.44 3.12 7.02 5.43 5.96 1.85
OAS 61 NA NA 152 158 149 60 492 358 431 60
Average* OAS (since Jan 1997) 66 NA NA 157 166 152 61 564 415 519 37
Std Dev* of OAS (since Jan 1997) 36 NA NA 94 130 75 30 268 200 313 30
Effective Duration (years) 5.49 5.15 4.30 6.87 5.42 7.35 5.22 4.41 5.86 5.11 6.69
Effective Maturity (years) 7.45 6.25 5.92 10.22 7.47 11.13 7.12 6.73 9.28 7.21 8.27
Coupon 3.40 2.09 4.82 4.74 4.70 4.64 4.04 7.53 6.03 5.92 3.13
Price 104.56 103.34 110.00 106.69 106.54 106.27 104.15 101.57 101.65 98.03 106.83
Market Value ($ millions) 16,585,274 6,057,723 646,371 3,560,728 1,161,307 2,007,384 4,868,582 1,156,969 1,224,810 348,118 23,952,959
Quality AA1/AA2 AAA/AAA AA2/AA3 A3/BAA1 A2/A3 A3/BAA1 AAA/AAA B1/B2 BAA2/BAA3 BAA3/BA1 n/a
31 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
Commodities Commodities had experienced an increase in their correlation to equity prices with the onset of the last credit crisis. However, a decoupling trend began in 2011, and commodities have significantly underperformed equities since. The year-to-date return of -40% for precious metals stands out among commodity groups.
Alternative
Assets
Commodities and Stocks
0
50
100
150
200
250
Dec 9
1
Dec 9
2
Dec 9
3
Dec 9
4
Dec 9
5
Dec 9
6
Dec 9
7
Dec 9
8
Dec 9
9
Dec 0
0
Dec 0
1
Dec 0
2
Dec 0
3
Dec 0
4
Dec 0
5
Dec 0
6
Dec 0
7
Dec 0
8
Dec 0
9
Dec 1
0
Dec 1
1
Dec 1
2
Com
moditie
s I
ndex L
evell
0
500
1,000
1,500
2,000
Sto
ck I
ndex L
evel
DJ UBS Commodity Index
S&P 500® Index
Sources: Bloomberg L.P., BMO Global Asset Management
As of 06/30/2013
DJ UBS
Agriculture
Subindex
DJ UBS
Livestock
Subindex
DJ UBS Grains
Subindex
DJ UBS Energy
Subindex
DJ UBS Precious
Metals Subindex
DJ UBS
Industrial Metals
Subindex
DJ UBS
Commodity
Index
S&P 500® Index
MTD -4.2 3.1 -6.1 -2.6 -15.2 -7.1 -4.7 -1.3
YTD 2013 -7.5 -4.4 -7.4 -2.0 -39.7 -17.4 -10.5 13.8
2012 3.9 -3.6 18.1 -9.4 -14.5 0.6 -1.1 16.0
Sources: Bloomberg L.P., BMO Global Asset Management
32 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
Crude Oil and Natural Gas Prices
0
20
40
60
80
100
120
140
160
De
c 9
0
De
c 9
2
De
c 9
4
De
c 9
6
De
c 9
8
De
c 0
0
De
c 0
2
De
c 0
4
De
c 0
6
De
c 0
8
De
c 1
0
De
c 1
2
Cru
de
Oil
($/b
arb
ell
0
2
4
6
8
10
12
14
16
Na
tura
l G
as (
$/B
tu)
Crude Oil
Natural Gas
Sources: Bloomberg L.P., BMO Global Asset Management
Commodities Natural gas, the star performer in 2012, has posted a relatively strong year-to-date performance, despite a significant decline in June. DJ UBS Commodity Index declined year-to-date, led by gold’s decline, which dropped 26% through the end of June.
Price of Gold
0
250
500
750
1,000
1,250
1,500
1,750
2,000
De
c 9
0
De
c 9
2
De
c 9
4
De
c 9
6
De
c 9
8
De
c 0
0
De
c 0
2
De
c 0
4
De
c 0
6
De
c 0
8
De
c 1
0
De
c 1
2
Go
ld (
$/t
roy o
z)
Gold
Sources: Bloomberg L.P., BMO Global Asset Management
Commodities Total Return
6.08.0 7.1 5.8
-4.3
12.1
-1.1
-16.5
-2.7
-26.3
4.1
-10.5-8.1 -7.6
4.7
-10.5
-4.7
6.4
-16.5
-11.0
2.6
-30.0
-20.0
-10.0
0.0
10.0
20.0
Wheat Corn Gold Copper West Texas Oil Natural Gas DJ UBS Commodity
Index
(%) 2012 YTD (06/30/13) MTD
Sources: Bloomberg L.P., BMO Global Asset Management
Alternative
Assets
33 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
REITS and Stocks
0
50
100
150
200
250
300
De
c 9
9
De
c 0
0
De
c 0
1
De
c 0
2
De
c 0
3
De
c 0
4
De
c 0
5
De
c 0
6
De
c 0
7
De
c 0
8
De
c 0
9
De
c 1
0
De
c 1
1
De
c 1
2
RE
IT I
nd
ex L
eve
l .
0
500
1,000
1,500
2,000
Sto
ck I
nd
ex L
eve
l
Wilshire U.S. REIT Index
S&P 500® Index
Sources: Bloomberg L.P., BMO Global Asset Management
Global Infrastructure and Stocks
0
500
1,000
1,500
2,000
2,500
3,000
3,500
De
c 9
9
De
c 0
0
De
c 0
1
De
c 0
2
De
c 0
3
De
c 0
4
De
c 0
5
De
c 0
6
De
c 0
7
De
c 0
8
De
c 0
9
De
c 1
0
De
c 1
1
De
c 1
2
Infr
astr
uctu
re I
nd
ex L
eve
l
0
500
1,000
1,500
2,000
Sto
ck I
nd
ex L
eve
l
S&P Global Infrastructure Index
S&P 500® Index
Sources: Bloomberg L.P., BMO Global Asset Management
Other Alternative Assets June continued the tough performance from May for alternatives (Hedge Funds, REITs, and Infrastructure), as they have significantly underperformed U.S. stocks year-to-date.
Total returns for periods of one year or more are annualized.
Alternative
Assets
Alternatives Total Return
3.75.0
7.4
0.5
7.1
4.83.6
2.4
13.8
0.7
-2.7-1.3
9.5
1.3
-0.3
-2.1-4.0
0.0
4.0
8.0
12.0
16.0
HFRI FOF Diversif ied Index S&P Global REIT Index S&P Global Infrastructure Index S&P 500® Index
(%)
10-Yr (05/31/13)
5-Yr (05/31/13)
YTD (05/31/13)
MTD
Sources: Bloomberg L.P., BMO Global Asset Management
34 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
Sandy Lincoln Chief Market Strategist
Bob Decker, CFA Director, Quantitative Strategies
Irina Pacheco, CFA Vice President, Quantitative Strategies
Investment Strategy Group
35 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
Index Definitions
Equity Indices
S&P 500® Index
The S&P 500® Index is an unmanaged index of large-cap common stocks.
Dow Jones Industrial Average
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on
the New York Stock Exchange and the Nasdaq.
Russell 1000® Index
Russell 1000® Index consists of approximately 1,000 of the largest companies in the U.S. equity
markets.
Russell 1000® Growth Index
Russell 1000® Growth Index measures the performance of those Russell 1000 Companies with
higher price-to-book ratios and higher forecasted growth values.
Russell 1000® Value Index
Russell 1000® Value Index measures the performance of those Russell 1000 Companies with
lower price-to-book ratios and lower forecasted growth values.
Russell Midcap® Index
Russell Midcap® Index measures the performance of the smallest 800 U.S. companies in the
Russell 1000 Index.
Russell Midcap® Growth Index
Russell Midcap® Growth Index measures the performance of those Russell Midcap companies
with higher price-to-book ratios and higher forecasted growth values.
Russell Midcap® Value Index
Russell Midcap® Value Index measures the performance of those Russell Midcap companies with
lower price-to-book ratios and lower forecasted growth values.
Russell 2500TM Index
The Russell 2500TM Index measures the performance of the small to mid-cap segment of the U.S.
equity universe. It is a subset of the Russell 3000® Index.
Russell 2000® Index
Russell 2000® Index is an unmanaged index that measures the performance of the smallest 2000
U.S. companies in the Russell 3000® Index.
Russell 2000® Growth Index
Russell 2000® Growth Index measures the performance of those Russell 2000 Companies with
higher price-to-book ratios and higher forecasted growth values.
Russell 2000® Value Index
Russell 2000® Value Index measures the performance of those Russell 2000 Companies with
lower price-to-book ratios and lower forecasted growth values.
Investments cannot be made in an index.
MSCI ACWI ex USA Index
The MSCI ACWI Index is a free float-adjusted market capitalization weighted index that is
designed to measure the equity market performance of developed and emerging markets.
MSCI EAFE Index (Developed Markets)
The MSCI EAFE Index Europe, Australasia, and Far East Index (EAFE) is a standard unmanaged
foreign securities index representing major non-U.S. stock markets, as monitored by Morgan
Stanley Capital International.
MSCI European Monetary Union Index
The MSCI EMU (European Economic and Monetary Union) Index is a free float-adjusted market
capitalization weighted index that is designed to measure the equity market performance of
countries within EMU.
MSCI AC Asia Pacific Index
The MSCI AC Asia Pacific Index is a free float-adjusted market capitalization weighted index that
is designed to measure the equity market performance of Asia and Pacific region.
MSCI Emerging Markets Index
The MSCI Emerging Markets Index is a market capitalization weighted index comprised of over
800 companies representative of the market structure of the emerging countries in Europe, Latin
America, Africa, Middle East and Asia. Prior to January 1, 2002, the returns of the MSCI Emerging
Markets Index were presented before application of withholding taxes.
NASDAQ Composite Index
The NASDAQ Composite Index is a market-cap weighted index of the more than 3,000 common
equities listed on the Nasdaq stock exchange.
STOXX Europe 600 Index
The STOXX Europe Index represents 600 large, mid, and small capitalization companies across
18 countries of the European Region.
Duetsche Borse AG German Stock Index
The Duetsche Borse AG German Stock Index (DAX) is a total return index of 30 selected German
blue chip stocks traded on the Frankfurt Stock Exchange. The equities use free float shares in the
index calculation.
CAC 40 Index
CAC 40 Index is a modified cap-weighted index of 40 companies on the Paris Bourse.
Shanghai Stock Index
Shanghai Stock Exchange Composite Index is a capitalization-weighted index. The index tracks
the daily price performance of all A-shares and B-shares listed on the Shanghai Stock Exchange.
NIKKEI 225 Index
The Nikkei-225 Stock Average is a price-weighted average of 225 top-rated Japanese companies
listed in the First Section of the Tokyo Stock Exchange.
36 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
Fixed Income Indices
Barclays U.S. Aggregate Index
The Barclays U.S. Aggregate Bond Index is an unmanaged index that covers the U.S.
investment-grade fixed-rate bond market, including government and credit securities,
agency mortgage pass-through securities, asset-backed securities and commercial
mortgage-based securities.
Barclays U.S. Interm. Gov/Crd Index
The Barclays Intermediate U.S. Government/Credit Index (Barclays Int Gov’t/Credit) is
an unmanaged index comprised of government and corporate bonds rated BBB or
higher with maturities between 1-10 years.
Barclays U.S. Corporate Index
The Barclays U.S. Corporate Bond Index is designed to measure the performance of
the U.S. corporate bond market.
Barclays U.S. Treasury Index
The Barclays U.S. Treasury Index is an unmanaged index that includes a broad range
of U.S. Treasury obligations and is considered representative of U.S. Treasury bond
performance overall.
Barclays Securitized Index
The Barclays U.S. Securitized Bond Index is an unmanaged index of asset-backed
securities, collateralized mortgage-backed securities (ERISA-eligible), and fixed-rate
mortgage-backed securities.
Barclays High Yield Index
The Barclays U.S. Corporate High-Yield Bond Index is an unmanaged index that covers
the USD-denominated, non-investment-grade, fixed-rate, taxable corporate bond
market.
B of A Merrill Lynch High Yield BB/B Constr. Index
The Bank of America Merrill Lynch BB-B Global High Yield Index is a subset of The
Bank of America Merrill Lynch Global High Yield Index including all securities rated BB1
through B3, inclusive.
Barclays 1-10 yr Municipals Index
The Barclays 1-10 Year Municipal Blend Index is a market value-weighted index which
covers the short and intermediate components of the Barclays Municipal Bond Index—
an unmanaged, market value-weighted index which covers the U.S. investment-grade
tax-exempt bond market.
Investments cannot be made in an index.
Barclays Global Aggregate Bond Index
The Barclays Global Aggregate Bond Index is an index of global government,
government-related agencies, corporate and securitized fixed-income investments.
Barclays Global Credit Index
The Barclays Global Credit Index is the credit component of the Barclays Global
Aggregate Index, an index of global government, government-related agencies,
corporate and securitized fixed-income investments.
Barclays Emerging Markets Bond Index
The Barclays Emerging Markets Index includes fixed and floating-rate USD-
denominated debt from emerging markets in the following regions: Americas, Europe,
Middle East, Africa, and Asia. For the index, an emerging market is defined as any
country that has a long-term foreign currency debt sovereign rating of
Baa1/BBB+/BBB+ or below, using the middle rating of Moody's, S&P and Fitch. The
index was launched on January 1, 1997 with index history backfilled to January 1, 1993.
The Barclays Emerging Markets Corporate Index is a component of the Barclays US
Emerging Markets Index which is made up of debt issued by corporations.
Index Definitions
37 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
Index Definitions
Alternative Investments Indices
DJ UBS Commodity Index
The Dow Jones-UBS Commodity Total Return Index is composed of commodities
traded on U.S. exchanges and it reflects the returns that are potentially available
through an unleveraged investment in the futures contracts on physical commodities
comprising the index plus the rate of interest that could be earned on cash collateral
invested in specified Treasury Bills.
DJ UBS Agriculture Subindex Index
The Dow Jones-UBS Agriculture Subindex is a sub-index of the Dow Jones UBS
Commodity Index and is currently composed of seven futures contracts on agricultural
commodities traded on U.S. exchanges.
DJ UBS Livestock Subindex Index
The Dow Jones-UBS Livestock Subindex is a sub-index of the Dow Jones UBS
Commodity Index and it is currently composed of two livestock commodities contracts
(lean hogs and live cattle) traded on U.S. exchanges.
DJ UBS Grains Subindex Index
The Dow Jones-UBS Grains Subindex is a sub-index of the Dow Jones UBS
Commodity Index and it is currently composed of three futures contracts on grains
traded on U.S. exchanges.
DJ UBS Energy Subindex Index
The Dow Jones-UBS Energy Subindex is a sub-index of the Dow Jones UBS
Commodity Index and it is currently composed of four energy-related commodities
contracts (crude oil, heating oil, natural gas and unleaded gasoline) traded on U.S.
exchanges.
DJ UBS Precious Metals Subindex Index
The Dow Jones-UBS Precious Metals Subindex is a sub-index of the Dow Jones UBS
Commodity Index and it is currently composed of two precious metals commodities
contracts (gold and silver).
DJ UBS Industrial Metals Subindex Index
The Dow Jones-UBS Industrial Metals Subindex is a sub-index of the Dow Jones UBS
Commodity Index and it is currently composed of four futures contracts on industrial
metals, three of which (aluminum, nickel and zinc) are traded on the London Metal
Exchange and the other of which (copper) is traded on the COMEX division of the New
York Mercantile Exchange.
Investments cannot be made in an index.
MSCI ACWI Commodity Producers Index
The MSCI ACWI Commodity Producers Index is a component of the broader MSCI
Commodity Producers Indices and covers large, mid and small cap companies across
45 Developed and Emerging Markets.
Wilshire US REIT Index
The Wilshire US REIT Index measures U.S. publicly traded Real Estate Investment
Trusts. It is a subset of the Wilshire US Real Estate Securities Index.
S&P Global REIT Index
The S&P Global REIT Index measures the performance of real estate investment trusts
in both developed and emerging markets.
S&P Global Infrastructure Index
The S&P Global Infrastructure Index provides liquid and tradable exposure to 75
companies from around the world that represent the listed infrastructure universe
including utilities, transportation and energy.
38 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
Index Definitions
Other Indices
S&P/Case-Shiller 20-City Index
The S&P/Case-Shiller 20-City Home Price Index is a composite index of the home price
index for 20 major metropolitan statistical areas in the U.S.
VIX Index
The Chicago Board Options Exchange Market Volatility Index is a measure of implied
volatility of S&P 500 index options, often referred to as the “fear” index.
CPI Index
The Consumer Price Index is a measure that examines the weighted average of prices
of a basket of consumer goods and services, such as transportation, food and medical
care.
Economic Cycle Research Institute (ECRI) Weekly Leading Index
ECRI Index is released each Friday by the Economic Cycle Research Institute, and
identifies turning points in the economic cycle that are indicated by pronounced
changes in the index. The index contains money supply data, stock prices, an industrial
markets price index developed by the organization, mortgage applications, bond quality
spread, bond yields, and initial jobless claims. An advantage of the index is that it is
very timely. ECRI is a New York-based independent forecasting group.
Conference Board Leading Economic Index® (LEI) for the U.S.
The leading economic index is composite average of several individual leading
indicators. It is constructed to summarize and reveal common turning point patterns in
economic data in a clearer and more convincing manner than any individual component
– primarily because it smoothes out some of the volatility of individual components.
Chicago Fed National Activity Index (CFNAI)
The Chicago Fed National Activity Index (CFNAI) is a monthly index designed to gauge
overall economic activity and related inflationary pressure and it is a weighted average
of 85 existing monthly indicators. A zero value indicates that the economy is expanding
at its historical trend rate of growth; negative values indicate below-average growth; and
positive values indicate above-average growth. When the 3-month moving average
moves below -0.7 following a period of economic expansion, there is an increased
likelihood that a recession has begun. When the 3-month moving average moves above
+0.7 more than two years into an economic expansion, there is an increased likelihood
that a period of sustained increasing inflation has begun (source: www.chicagofed.org).
Investments cannot be made in an index.
European Countries Purchasing Manager Index
The PMIs are designed to provide a single figure snapshot for the Eurozone. It is based
on a survey of over 3,000 business executives in the Euro area and it is designed to
provide the most up-to-date picture of business conditions. Anything above 50 indicates
expansion; below 50, a contraction. The greater the divergence from 50, the greater the
rate of change. The index in released by Markit Economics.
Univ. Of Michigan Survey of Consumer Confidence Sentiment is a survey of
consumer attitudes concerning both the present situation as well as expectations
regarding economic conditions conducted by the University of Michigan. It has a base
year 1966=100.
ISM Purchasing Managers Indices compare changes in various market areas on a
month to month basis and include prices paid for all purchases.
HFRI FOF Diversified Index
The Hedge Fund Research Diversified Index invests in a variety of strategies among
multiple hedge funds managers. A fund in the HFRI FOF Diversified Index tends to
show minimal loss in down markets while achieving superior returns in up markets.
39 BMO Economy and Markets: Retrospective and Perspective • July 1, 2013
Disclosures
For further information, please visit our websites at
BMO Funds www.bmofundsus.com
BMO Asset Management Corp. www.bmogamus.com
This is not intended to serve as a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflect our
judgment at this date and are subject to change. Information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy.
This publication is prepared for general information only. This material does not constitute investment advice and is not intended as an endorsement of any specific
investment. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this
report. Investors should seek advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report
and should understand that statements regarding future prospects may not be realized. Investment involves risk. Market conditions and trends will fluctuate. The
value of an investment as well as income associated with investments may rise or fall. Accordingly, investors may receive back less than originally invested.
Investments cannot be made in an index. Past performance is not necessarily a guide to future performance.
BMO Global Asset Management is the brand name for various affiliated entities of BMO Financial Group that provide trust, custody, securities lending, investment
management, and retirement plan services. Certain of the products and services offered under the brand name BMO Global Asset Management are designed
specifically for various categories of investors in a number of different countries and regions. Products and services are only offered to such investors in those
countries and regions in accordance with applicable laws and regulations. BMO Financial Group is a service mark of Bank of Montreal (BMO).
Investment products are: NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE
©2013 BMO Financial Corp.