1. Is the slowdown in Q1 GDP growth a cause for concern?


With the disappointing start to the year, it appears that GDP growth is on course for another underwhelming gain of around 2% this year.

Still, we believe recession risk remains low and there are a number of reasons to be optimistic about prospects for U.S. economic growth in coming quarters.

Other measures of the economy, such as employment growth, have been much stronger than official GDP numbers, and both the manufacturing and services activity surveys have improved significantly in the past few months.

A moderation in consumer spending, soft investment, and negative contributions from trade and inventories were behind the slowdown in Q1 GDP.

While some of these headwinds will persist, household fundamentals remain strong and there is little reason to believe consumption growth will not rebound over the remainder of this year.

2. What happened at the recent FOMC meeting?

As universally expected, the Fed did not change monetary policy at their late-April meeting.

They decided to maintain the federal funds rate in the range of 0.25% to 0.50%. It has been at that level since this past December.

They downgraded their view of the domestic economy, noting that household spending had moderated despite continued improvement in the labor market, rising real incomes, and consumer sentiment that remains high.

The Fed did upgrade their view of global issues, no longer viewing the slowing global economy as a risk to the domestic economy. That said, they will continue to monitor it.

3. What is behind the recent slowdown in corporate earnings?

Declining energy sector profits have had the most negative effect on overall U.S. earnings growth in the last several quarters, while weaker global demand and the stronger dollar are also weighing on overseas sales for U.S. corporations.

More broadly, although corporate earnings growth is still expected to improve modestly in 2016, the profit cycle is showing signs of plateauing and forward earnings estimates continue to decline. One of the keys to success of the current bull market has been the strong incremental profit margin expansion driven by revenues growth and a cost containment mentality of corporations.

However, with slowing global growth, rising wages in the U.S., and prospects for the dollar to remain strong, margin growth has slowed.

4. Is China growth bottoming?

We continue to believe the risks of an economic hard landing have been exaggerated.

In fact, though there is no sign of a turnaround yet in either the official GDP figures or industrial production, a cyclical rebound in near-term growth does appear to be underway.

PMI survey data, both official and unofficial, have improved recently and evidence elsewhere points to a policy-driven pick-up in activity, supported in particular by property and infrastructure investment.

Rising middle class incomes and urbanization continue to drive growth in consumer, healthcare, and service industries as the economy transitions from low-end manufacturing.

Structural reform will take many years to bear fruit, but with both fiscal and monetary policy still being loosened, China’s economy is likely to pick up somewhat in the months ahead.

5. Will the Puerto Rico Government Development Bank (GDB) default on its upcoming debt service payment?

The Puerto Rico GDB faces a $422 million debt service payment on May 2. They are expected to default.

Both S&P and Moody’s have publicly stated their expectation of a May 2 default by Puerto Rico on some of its securities.

Federal legislation that would provide relief to Puerto Rico is still being debated in Washington D.C.

The proposed legislation includes the creation of a Federal control board with a mechanism to restructure debt. It is not a bailout.

Puerto Rico has a $2 billion debt payment due in July.

In any event, creditor litigation is likely to ensue.

Investment and Insurance Products: 
• Are Not insured by the FDIC or any other federal government agency 
• Are Not deposits of or guaranteed by a Bank or any Bank Affiliate 
• May Lose Value


Important Disclosures

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. 

Certain statements contained herein may constitute projections, forecasts, and other forward-looking statements, which do not reflect actual results and are based primarily upon a hypothetical set of assumptions applied to certain historical financial information. 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.

Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as of the date of this document
and are subject to change.

There are inherent risks with equity investing. These risks include, but are not limited to, stock market, manager, or investment style. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices.

Investing in international markets carries risks such as currency fluctuation, regulatory risks, and economic and political instability. Emerging markets involve heightened risks related to the same factors as well as increased volatility, lower trading volume, and less liquidity. Emerging markets can have greater custodial and operational risks, and less developed legal and accounting systems, than developed markets.

There are inherent risks with fixed income investing. These risks may include interest rate, call, credit, market, inflation,
government policy, liquidity, or junk bond. When interest rates rise, bond prices fall.

High yield bonds offer a higher yield and carry a greater risk of loss of principal and interest and an increased risk of
default or downgrade than investment grade securities.

The yields and market values of municipal securities may be more affected by changes in tax rates and policies than similar
income-bearing taxable securities. Certain investors’ incomes may be subject to the Federal Alternative Minimum Tax
(AMT), and taxable gains are also possible.

Investments in the municipal securities of a particular state or territory may be subject to the risk that changes in the economic conditions of that state or territory will negatively impact performance. These events may include severe financial difficulties and continued budget deficits, economic or political policy changes, tax base erosion, state constitutional limits on tax increases, and changes in the credit ratings.

Investments in emerging markets bonds may be substantially more volatile, and substantially less liquid, than the bonds of governments, government agencies, and government-owned corporations located in more developed foreign markets.

Investments in commodities can be very volatile and direct investment in these markets can be very risky, especially for
inexperienced investors.

Returns include the reinvestment of interest and dividends.

Investing involves risk, including the loss of principal.

As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money.

Past performance is no guarantee of future performance.

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.