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Transcript of Eagle Wealth Management - Chad Staskal Presentation...,03257$17 ,1)250$7,21 7KH LQIRUPDWLRQ...
Investment management services provided by City National Bank through its wholly-owned subsidiary City National Rochdale, LLC, a registered investment advisor.
Market UpdateMay 6, 2020
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TABLE OF CONTENTS Weekly Update
Market Outlook
COVID-19 Outbreak
Economic Impact and Policy Response
Portfolio Positioning
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Major Developments This Week
WEEKLY UPDATE
Source: CNR Research.
Key states starting to implement reopening plans
Fed puts more money in support of businesses, state and local gov’ts
Sentiment: 0.05 vs. reality: 0.0001
Earnings not as bad as feared, but significant uncertainty remains
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CNR Coronavirus Crisis Playbook
MARKET OUTLOOK
Investment Committee considering:
Equity market ahead of the fundamentals
Company updates: 40% of companies reporting with little confidence in guidance
Highly selective on a few companies we see as attractive now
New stimulus to be limited if states reopen
“Out of the Crisis”: investment strategy focused on agile and resistant companies
Legacy of the coronavirus on the U.S. standard of living in the future
Massive one-time debt impact – limited inflation risk
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Testing Levels Open For Scientific and Behavioral Debate
Federal Reserve focused on helping businesses and municipalities
Some states more ready than others for testing, tracking, tracing
New York is the worst affected and the center of reopening attention
COVID-19 OUTBREAK
Source: CNR Research, dotted line represents the position of the indicator 1 week ago.
COVID-19 Spread and Mortality
COVID-19 Testing
Policy Response
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Phased return to more normalcy starting in MayU.S. Has Passed the Peak
COVID-19 OUTBREAK
Source: The COVID Tracking Project, calmatters.org.
0
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Hospitalizations across states
New York
California
WashingtonOregon
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How Has The West Coast Fared? Outbreaks in California, Washington, and Oregon have been relatively contained
Size of outbreaks in these states is much more manageable than in New York
COVID-19 OUTBREAK
Source: The COVID Tracking Project.
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
California Washington Oregon New York
Hospitalizations at Peak
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How Has The West Coast Fared? Outbreaks in California, Washington, and Oregon have been relatively contained
Size of outbreaks in these states is much more manageable than in New York
COVID-19 OUTBREAK
Source: The COVID Tracking Project.
0
5,000
10,000
15,000
20,000
25,000
California Washington Oregon New York
Total Fatalies
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0
2
4
6
8
10
12
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Daily New Cases Per Million (Rolling 7 Day Average)
China South Korea
Can We Manage a Second Wave? Evidence From Asia
COVID-19 OUTBREAK
Source: Bloomberg.
Both China and South Korea have seen no significant resurgence
Testing, track and trace, enable by technology, have played a major role
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Keys to Managing a Surge
COVID-19 OUTBREAK
Source: Bloomberg.
Once the spread has been contained to a low number of cases, other aspects become important
Effective reopening boosted by adequate testing, contact tracing, and hospital capacity
Testing Contact Tracing
Hospital Capacity
Contained Spread
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West Coast Reopening Status
COVID-19 OUTBREAK
Source: Governor press briefings, IHME, state government websites, the COVID Tracking Project.
Oregon: Reopening parts of state starting May 15
Washington: Stay-at-home through May 31; phased reopening of some activities starting May 5
California: Reopening parts of state starting May 8
Tests/WeekStated Goal:Tests/Week
HospitalizedAvailable
Hospital Beds (approx.)
Contact Tracer Target
California 194,465 175,000 4,616 68,000 10,000
Oregon 12,259 15,000 207 2,000 600
Washington 36,528 140,000 263 5,000 1,500
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Companies Are Starting to Reopen…With Precautions
COVID-19 OUTBREAK
Boeing Starbucks
Reopen Date April 20 May 4
Locations Seattle, Philadelphia Various
Protocols
• Enhanced facility cleaning
• Staggered shifts
• Distancing where possible
• Face coverings & protective gear
• Wellness & temperature checks
• Remote work where possible
Service:
• Drive-thru service
• Mobile order, contact-less pick-up
• At-home delivery
Work:
• Isolate higher-risk
• Increased pay
• Pay to cover illness
Source: Boeing, Starbucks. The information provided is intended to illustrate the manner in which companies are addressing the COVID-19 outbreak and should not be viewed as an investment recommendation.
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Magnitude is difficult to comprehend
Economic Toll Has Been Staggering
ECONOMIC IMPACT AND POLICY RESPONSE
25 million+ lost jobs nationwide, nearly 5 million on the west coast
More than 50% of small businesses closed
Major decline in investment
Source: Bloomberg, Homebase, CNR Research.
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ECONOMIC IMPACT AND POLICY RESPONSE
Small Businesses and Hourly Works Hurt Most Lockdowns have resulted in major small business closures and millions of job losses
Economic toll is staggering across states
Source: Homebase.
-60% -61%
-47%
-59% -60%
-46%
-57%-60%
-47%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
Employees Working vs. January 2020 Hours Worked vs. January 2020 Locations Open vs. January 2020
California Oregon Washington
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Meaningful Aid For Small Businesses
ECONOMIC IMPACT AND POLICY RESPONSE
Source: Small Business Administration
Paycheck Protection Program was part of the CARES Act passed by congress
More than $500 billion of potentially forgivable loans
Incentivized small businesses to retain employees
Approved Loans Approved Dollars Avg. Loan Size
California 375,078 $54,075,351,664 $144,171
Oregon 9,508 $5,454,354,436 $573,659
Washington 18,906 $9,970,254,564 $527,359
Total United States 3,873,158 $518,021,247,011 $133,746
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Sustaining 5 Million Unemployed on the West CoastECONOMIC IMPACT AND POLICY RESPONSE
Source: Bureau of Labor Statistics, fileunemployment.org. Unemployment benefits for California, Washington, and Oregon based on worker earning $936 per week.
• Unemployment benefits in the CARES Act could replace 100% of income for many• Extra $600/week persists through July 2020
$600/week(CARES Act)
$385/week(Pre-Crisis)
$936/week(Q4 2019)
$-
$200
$400
$600
$800
$1,000
$1,200
California UnemploymentBenefit
Oregon UnemploymentBenefit
Washington UnemploymentBenefit
Median Weekly Earnings (US)
Chart Title
$936/week
$468/week
$600/weekCARES Act
$600/weekCARES Act$600/week
CARES Act
$538/week$450/week
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Default Risk Elevated, but Not Near 2008 LevelsECONOMIC IMPACT AND POLICY RESPONSE
Source: Bloomberg.
• Market does not appear to fear defaults of blue-chip companies• Monetary and fiscal policy responses have helped
$600/week(CARES Act)
$385/week(Pre-Crisis)
$936/week(Q4 2019)
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Default RiskCredit Default Swap Spreads Over Time
JPMorgan Chase Apple Home Depot Johnson & Johnson Disney Walmart
Economic and Financial Indicators
City National Rochdale indicators are signaling short but significant recession over the next two quarters.
ECONOMIC & MARKET OUTLOOK
Indicators Are Forward-Looking Three to Six Months
Source: City National Rochdale. As of April 2020.
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GDP Potential Scenarios
PORTFOLIO POSITIONING
Source: CNR Research.
GDP Q2 GDP Q3 GDP Q4
Potential Range of Quarterly GDP Growth in 2020
-27% +13% +10%
-43% +31% +17%
Percent Change From Preceding Period, Seasonally adjusted at annual rates
to to to
2.1%
-6.2%
4.5%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
2019 2020 est 2021 est
Full Year Estimates
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Our current outlook suggests full recovery in approximately 2 yearsWhen Will GDP Fully Recover?
PORTFOLIO POSITIONING
Source: CNR Research.
Q42019
Q12020
Q22020
Q32020
Q42020
Q12021
Q22021
Q32021
Q42021
Q12022
Q22022
Q32022
Q42022
Potential US GDP Path
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PORTFOLIO POSITIONING
Significant Impact Across Industries
Source: Womply, data as of 5/5/2020.
59%
50%
40%
-21%
-24%
-29%
-36%
-36%
-44%
-49%
-64%
-80%
-88%
-100% -80% -60% -40% -20% 0% 20% 40% 60% 80%
Public Services and Government
Food and Beverage Shops
Retail and Wholesale Businesses
Religious Organizations
Online Businesses
Sports and Recreation Places
Educational Institutions
Bars and Lounges
Restaurants
Arts and Entertainment Businesses
Lodging Places
Parking Businesses
Transportation Businesses
Industry RevenuesYear-over-year % Change
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West Coast Municipal Bond Outlook
PORTFOLIO POSITIONING
Source: CNR Research.
West Coast Outlook
Tax baseCalifornia and Washington rely on personal income taxes (more volatile),while Oregon relies more on sales taxes
ReservesAll 3 states had ample reserves pre-crisis with good cash management; near-term cash flows should be manageable
Budgetary impact Significant cuts likely absent Federal aid to replace lost revenues
Local gov’tsPressure from regional weakness and mandates imposed by states; however all three states provide a degree of support to local funding, such as schools
What we favor inCA, WA, and OR
Emphasizing quality and prefer essential service revenue bonds
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PORTFOLIO POSITIONING
The largest stocks now make up more than 17% of the S&P 500. Highly Concentrated Market
Source: FactSet, CNR Research. 2020 data reflects the end of April 2020.
10%
11%
12%
13%
14%
15%
16%
17%
18%
19%
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Weight of Largest 5 Companies in the S&P 500
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We have not seen a market nearly this concentrated in 20 years. Assessing Concentrated Markets
Source: FactSet, Bloomberg. Weight in S&P 500 during in top chart reflects average weight between Sept 1997 and March 2000. Weight in S&P 500 in bottom chart reflects avg. weight between March 23 and May 4, 2020.
Weight in S&P 500
Returns P/E Ratio ReturnSept 1998 -Mar 2000
March 30, 2000
Mar 2000 -July 2002
Microsoft Corporation 4% 88% 65x -54%General Electric Company 3% 103% 47x -37%Intel Corporation 2% 197% 55x -70%Cisco Systems, Inc. 2% 376% 364x -82%Walmart Inc. 2% 117% 46x -16%
Company Weigh in the S&P 500Returns
March 23 - May 4, 2020P/E Ratio
May 4, 2020
Microsoft Corporation 6% 32% 32x
Apple Inc. 5% 31% 23x
Amazon.com, Inc. 4% 22% 111x
Alphabet, Inc. 3% 25% 28x
Facebook, Inc. 2% 39% 25x
1998 – 2002:
2020:
PORTFOLIO POSITIONING
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PORTFOLIO POSITIONING
Stocks Appear Highly Valued After the Recent Rally
S&P 500 Forward Price/Earnings Ratio
Overvalued
Fairly Priced
Attractive
Very Attractive
Source: FactSet, CNR Research.
2.47
2.57
2.67
2.77
2.87
2.97
3.07
1992 1994 1996 1998 1999 2001 2003 2005 2006 2008 2010 2012 2013 2015 2017 2019 2020
18
24
16
14
10
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Stocks Rally, but Economic Fundamentals Remain Uncertain
PORTFOLIO POSITIONING
Source: Bloomberg, CNR Research. Data reflects S&P 500 Index price returns, which does not reflect the deduction of investment management fees.
Bear Market Peak to Trough Biggest RallyRally Peak to
Market Bottom
1966 -22% +7% -9%
1968-1970 -36% +6% -23%
1973-1974 -48% +8% -38%
1980-1982 -27% +11% -14%
1987 -33% +15% -13%
2000-2002 -49% +21% -32%
2007-2009 -57% +18% -33%
2020 -34% +28% ?
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IMPORTANT INFORMATION
The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. This presentation is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein.
The material contains forward-looking statements regarding intent, beliefs, or current expectations which are used for informational purposes only. Readers are cautioned that such forward-looking statements are not a guarantee of future performance, involve risks and uncertainties, and actual results may differ materially from those statements as a result of various factors. The views expressed are also subject to change based on market and other conditions. Furthermore, the opinions and information presented do not involve the rendering of personalized investment, financial, legal, or tax advice.
Certain information has been provided by third-party sources and, although believed to be reliable, it has not been independently verified and its accuracy or completeness cannot be guaranteed
Adjustments to portfolio strategies are based on guidelines set forth by City National Rochdale’s Asset Allocation Committee. Individual client allocations among strategies, asset classes, portfolio weightings may be higher or lower given differences in portfolio holdings, client imposed restrictions, and/or the customized strategy implemented by each client’s portfolio manager. These differences may have a material impact on individual client’s performance returns.
Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as on the date of this document and are subject to change.
This material is available to advisory and sub-advised clients, as well as financial professionals working with City National Rochdale, a registered investment advisor and a wholly-owned subsidiary of City National Bank.
Indices are unmanaged and one cannot invest directly in an index. Index returns do not reflect a deduction for fees or expenses.
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results.
Important Information
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IMPORTANT INFORMATION
This presentation is for general information and education only. City National makes no representations or warranties in respect of this presentation and is not responsible for the accuracy, completeness or content of information contained in this presentation. City National is not responsible for, and expressly disclaims all liability for, damages of any kind arising out of use, reference to, or reliance on any information contained in or from the site. The information in this presentation should not be used to obtain credit or for any other commercial purpose nor should it be construed as tax, accounting, regulatory or legal advice. Rules in the areas of law, tax andaccounting are subject to change and open to varying interpretations and you should seek professional advice from your advisor. Nothing in this presentation should be construed as an offer, or solicitation of an offer, to buy or sell any financial instrument. It should not be relied upon as specific investment advice directed to the viewer's specific investment objectives. Any financial instrument discussed in this presentation may not be suitable for the viewer. Each viewer must make his or her own investment decision, using an independent advisor if prudent, based on his or her own investment objective and financial situation. Prices and availability of financial instruments are subject to change without notice. Financial instruments denominated in a foreign currency are subject to exchange rate risk in addition to the risk of the investment. City National Bank (and its clients or associated persons) may, at times, engage in transactions in a manner inconsistent with this presentation and, with respect to particular securities and financial instruments discussed, may buy from or sell to clients or others on a principal basis. Past performance is not necessarily an indication of future results.
Icons used: Open Door by Juan Pablo Bravo from the Noun Project. Bank by IconPai from the Noun Project, questions by GregorCresnar from the Noun Project, Sentiment Analysis by Evangeline White from the Noun Project
Non-Deposit Investment Products:
Are not insured by the FDIC.
Are not deposits or other obligations of or guaranteed by City National Bank.
Are subject to investment risks, including possible loss of the principal amount invested.
Deposit products and services are provided by City National Bank Member FDIC. City National Bank is a subsidiary of Royal Bank of Canada. Redistributed with the permission of City National Rochdale.
Important Information
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INDEX DEFINITIONS
The Standard and Poor’s 500 Index (S&P 500) is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance.
The Russell 2000 Index is comprised of the smallest 2000 companies in the Russell 3000 Index, representing approximately 8% of the Russell 3000 total market capitalization. The real-time value is calculated with a base value of 135.00 as of December 31, 1986. The end-of-day value is calculated with a base value of 100.00 as of December 29, 1978.
The MSCI Emerging Markets Index is a free-float weighted equity index that captures large and mid cap representation across Emerging Markets countries. The index covers approximately 85% of the free float-adjusted market capitalization in each country.
The MSCI EAFE Index is a free-float weighted equity index. The index was developed with a base value of 100 as of December 31, 1969. The MSCI EAFE region covers developed market countries in Europe, Australasia, Israel, and the Far East.
The Bloomberg Barclays US Treasury Intermediate Index measures US dollar-denominated, fixed-rate, nominal debt issued by the US treasury with maturities of 1 to 9.9999 years to maturity.
The Bloomberg Barclays US Corporate Bond Index Measures the investment grade, fixed-rate, taxable corporate bond markets. It includes USD denominated securities publicly issued by US and non-US industrial, utility and financial issuers.
Deposit products and services are provided by City National Bank Member FDIC. City National Bank is a subsidiary of Royal Bank of Canada. Redistributed with the permission of City National Rochdale.
Index Definitions
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INDEX DEFINITIONS
The Bloomberg Barclays US Corporate High Yield Bond Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded.
Deposit products and services are provided by City National Bank Member FDIC. City National Bank is a subsidiary of Royal Bank of Canada. Redistributed with the permission of City National Rochdale.
Index Definitions
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