SOURCE: BMO Financial Group

BMO Financial Group

August 20, 2013 13:20 ET

BMO Private Bank September Financial Market Outlook: U.S. Economy Fluctuates Heading Into Second Half of 2013

CHICAGO, IL--(Marketwired - Aug 20, 2013) - The United States' economic outlook is decidedly mixed as it approaches the second half of 2013, according to BMO Private Bank's September 2013 Outlook report.

Highlights from the report include:

U.S. Economy Experiences High and Lows

The latest economic figures from the U.S. provided no clear direction moving into mid-2013:

  • The 1.7 percent Gross Domestic Product (GDP) annualized growth in the second quarter was well short of the long-term trend of three percent.
  • New car sales accelerated in July at a faster growth rate than at any other time since 2007, and most automakers experienced double-digit sales growth.
  • The S&P/Case-Shiller home price index jumped 12.2 percent year-over-year in August.
  • Job growth remains tepid as employment numbers increased by only 162,000 in July.
  • Unemployment dropped to 7.4 percent.

"Late last year there were signs that domestic growth would trend higher in the second half of 2013 as the economy would overcome the overhang of higher payroll taxes and sequestration. Today's forecasts, however, are less optimistic," said Jack Ablin, Chief Investment Officer, BMO Private Bank. "With Federal Reserve chairman Ben Bernanke stepping down in January, economists and policymakers will surely be keeping a watchful eye on the markets."

Equity Markets Make Solid Progress

According to the report, equity markets look bright as investors move into the latter half of 2013:

  • Most sector groups (with the exception of telecom shares) gained ground in July.
  • Stocks rebounded in July; the S&P 500 rose an additional 4.9 percent, boosting the blue chip index about 20 percent higher for the year.
  • Healthcare stocks experienced a seven percent return.
  • U.S. small and mid cap stocks outpaced large cap counterparts in the first part of 2013.
  • A weaker dollar helped propel large and small foreign stocks ahead of the S&P 500 in July, but remain well behind for the year.
  • Emerging market equities picked up just one percent in July, leaving them nine per cent lower this year.

"U.S. equities are taking their cue from Federal Reserve policy, with quantitative easing measures providing equity investors with liquid courage," said Mr. Ablin. "While it may not be a bubble, stocks are entering new territory. The safety net is stitched together by earnings and revenues, and we expect this net to be about 10 percentage points below current values."

Emerging World Will Impact Global Growth

Over the last two decades, emerging market economies like China and India have made a profound impact on the world economy. The report however notes that deleveraging in the U.S., Europe and Japan since 2008 has reduced the demand for cheap imported goods, denting China's growth. Further, slowing growth and sheer size have undermined the impact of Brazil, Russia, India and China on world growth today.

"Investors are beginning to discount the future, yet the emerging world will continue to play an important role in global growth and investment markets," said Mr. Ablin. "As tastes shift with acquired wealth, it will be the perfect time for well-established companies in the West to capitalize on emerging consumptions trends."

To view a copy of the report please visit: http://research-ca.bmocapitalmarkets.com/documents/E4CC2B4B-6835-4899-A995-D67C79CCDF09.PDF

Contact Information

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