Market Perspective - November 2018

1. Market Perspective – November 2018
Experience Insight Impact
Overview: With markets around the world recently dipping into correction territory, investors are
weighing the future. Markets are constantly climbing a wall of worry, and there are a few concerns
which have come to the forefront. These concerns are set against the backdrop of a number of
positive factors. This month, we weigh some of the critical data currently being used by market
participants to measure progress.
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2. Recent Concerns
Experience Insight Impact 2
As we stated last month, the short-term environment continues to be dominated by
a few primary fears:
• The Federal Reserve’s (The Fed) efforts to increase interest rates may be too
rapid and may stall the economy rather than slow it.
• The ongoing global tensions continue to make forecasting more challenging for
companies, given potential supply chain disruptions and potential profitability
related issues.
• Identifying reasonable economic and earnings growth rates given the challenges
mentioned above, has left investors questioning the appropriate “market
multiple” to apply to future earnings.
• Longer term concerns about deficits and debt linger prominently in investors’
minds.

3. Recent Interest Rate Impact
Experience Insight Impact 3
• The Fed has been steadily
increasing interest rates for
several years with an
acceleration in 2018.
• At least 3 more increases over
the next year are currently
widely anticipated.
• The increase in rates,
particularly the recent moves,
has slowed interest rate
sensitive portions of the
economy, such as housing and
auto sales.
Source: Bloomberg

4. Trade Concerns
Experience Insight Impact 4
Over the short-term, markets have been increasingly correlated to trade headlines, particularly those
associated with China.
Source: Neuberger Berman, “Investment Strategy and Asset Allocation”; Bloomberg, June 11, 2018 Source: Neuberger Berman, “Investment Strategy and Asset Allocation”; Bloomberg, Oct. 10, 2018

5. Earnings and Valuation Multiples
Experience Insight Impact 5
So far this year, earnings growth has been exceptional (with the tailwind effect of a new corporate tax policy), and sustaining the
earnings growth rates of the past few quarters will prove difficult. Market participants are struggling to figure out where growth rates
will fall out. The chart above shows quarterly sales growth on the top and quarterly earnings growth on the bottom. The current quarter
(Q3 2018) is highlighted by the vertical yellow line, with the orange bars to the left reflecting historical quarterly data and the orange
bars to the right reflecting the analyst community’s quarterly projections. You can see the dramatic drop off in future expectations.
Source: Bloomberg

6. Federal Deficits Continue to Mount
Experience Insight Impact 6

7. Positive Factors
Experience Insight Impact 7
With these risks in mind, it is important to recognize that current economic
conditions remain strong, against a backdrop of valuations which remain reasonable
(assuming growth does not become negative). Positive factors include:
• GDP growth and critical components of the domestic economy remain strong
(e.g. labor).
• Earnings growth remains robust.
• Valuations are within normal bands, and we currently are not at extreme levels.

8. GDP is Steady and Growing
Experience Insight Impact 8
Source: Bloomberg

9. Earnings Update
Experience Insight Impact 9
Source: Bloomberg

10. Valuation Multiples are Reasonable
Experience Insight Impact 10
As highlighted above in yellow, the S&P 500 is within the midpoint of most historical ranges for various
valuation measures.

11. Market Perspective – November 2018
Experience Insight Impact
Conclusion: The weight of the evidence is presently mixed, with strong growth and reasonable
valuations dominating the current landscape, offset by concerns about future direction. Investors are
closely monitoring conditions as they evolve, with a particular eye towards the Fed’s actions and
global trade talks. While we currently believe the investment environment remains modestly
favorable, we are actively watching for signs of a shift, and we remain focused on the long-term.
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12. Disclaimer
Experience Insight Impact
Opinions expressed in this commentary may change as conditions warrant and is for informational
purposes only. Information contained herein is not intended to be personal investment advice for
any specific person for any particular purpose. We utilize information sources that we believe to
be reliable but cannot guarantee the accuracy of those sources. Past performance is no guarantee
of future performance; investing involves risk and may result in loss of capital. Consider seeking
advice from a professional before implementing any investing strategy.
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