quarterly update


2015: A Fair Amount of Pain, with Little Gain
Commodity Prices, the Fed, and China Drive 2016’s Economic Outlook
2016 Equity Outlook: Can Stocks Withstand Higher Interest Rates?
High Yield Bond Market Stronger Than It May Appear
Outlook for Oil: Ready for a Rebound?

From the Desk of


Many asset classes experienced meaningful volatility in 2015 without garnering much return for investors. Economic uncertainty, slowing corporate earnings, sensitivity to interest rate increases, declines in energy markets, and the increased risks in the high yield debt markets all converged to dampen U.S. equities and fixed income returns. The market began to experience downward volatility in August, abated for a few months, then rose again in December. This resulted in U.S. equities and core fixed income both finishing up around 1%, although high yield bonds were down about 5%. For the year, U.S. equites generated modest positive returns, while investment grade bonds were largely flat and high yield markets declined. 

The disappointment in U.S. earnings, largely attributed to the declines in the energy and manufacturing sectors, accounts for the muted equity returns. Currently, we believe that the U.S. economy is in a stable, moderate growth phase with a low risk of recession. At this time, we do not believe issues in China and Europe will lead to a U.S. economic downturn. China is largely misunderstood with respect to its impact on U.S. economic activity, and oil price declines are favorable for many major economies globally. Our belief is that domestic levels of employment, combined with the strong performance of several economic sectors, will give the U.S. economy the necessary spark to generate modest growth.

The Federal Reserve raised interest rates and appears willing to implement more increases. For equity investors to experience a favorable return in 2016, corporate profits need to meet our expected 6% growth rate. We do see profits growing in many segments of the U.S. economy, but they will likely be offset by significant weakness in energy and industrials.

After three years of double-digit gains in the S&P 500, 2015 was undoubtedly disappointing for investors. However, as is often the case, the total picture is more encouraging than the headlines suggest. Wages are growing, which is a critical factor in a domestic economy dominated by consumption. The housing market continues to recover. Car sales are at record levels. Inflation is subdued. Energy prices remain low—a net positive for consumers and the overall economy. The Fed is raising rates because it believes the economy is strengthening and can withstand modest increases. These are not signs of an imminent recession or bear market.

Things look less promising overseas, however, our view there is more nuanced. Europe continues to grapple with slow economic growth, but is slowly working through its issues. As such, the risk of danger is perhaps in the past. While the headlines concerning China’s economic growth are—in our view—nothing new, the Chinese economy is experiencing unprecedented changes all at once. Changes such as currency management, debt management, corporate privatization, and political dynamics will take decades to complete. Despite the headlines and our expectation of future volatility and uncertainty, longer term growth in corporate profits is attractive.

We have confidence in our agile and competitive economy and remain committed investors in U.S. companies. Many sectors like services, technology, and healthcare are continuing to expand and innovate, shaping the economic future and potential to provide shareholders with appropriate long term rewards. America’s private sector continues to move forward and we are setting realistic expectations for returns in 2016.

On behalf of City National Rochdale, I wish everyone a very happy new year. We value your relationship and welcome hearing from you. If there is something you would like to discuss, please contact your advisor or portfolio manager. If I can be of assistance to you, please contact me directly at garrett.dalessandro@cnr.com.

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 on 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, 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. 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 below-investment-grade debt securities and unrated securities of similar credit quality, commonly known as “junk bonds” or “high-yield securities,” may be subject to increased interest, credit, and liquidity risks.

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. Emerging markets bonds can have greater custodial and operational risks, and less developed legal and accounting systems than developed markets.

Investments in Master Limited Partnerships (MLP) are susceptible to concentration risk, illiquidity, exposure to potential volatility, tax reporting complexity, fiscal policy and market risk. Investors of MLPs are subject to increased tax reporting requirements. MLP investors typically receive a complicated Schedule K-1 form rather than Form 1099. MLPs may not be appropriate investments for tax-advantaged accounts because of potential negative tax consequences (Unrelated Business Tax Income).

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

Returns include the reinvestment of interest and dividends.

Investing involves risk, including the loss of principal. Diversification may not protect against market loss or risk.

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.

The Dow Jones Industrial Average Index is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.

The MSCI Emerging Markets (EM) Latin America Index captures large and mid-cap representation across five Emerging Markets (EM) countries* in Latin America. With 119 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.

*EM Latin America countries include: Brazil, Chile, Colombia, Mexico, and Peru.

The Barclays U.S. Corporate High Yield Bond Index is a market value-weighted index which covers the U.S. non-investment grade fixed-rate debt market. The index is composed of U.S. dollar-denominated corporate debt in Industrial, Utility, and Finance sectors with a minimum $150 million par amount outstanding and a maturity greater than one year. The index includes reinvestment of income.

The NASDAQ is a global electronic marketplace for buying and selling securities, as well as the benchmark index for U.S. technology stocks. NASDAQ was created by the National Association of Securities Dealers (NASD) to enable investors to trade securities on a computerized, speedy, and transparent system. The term “NASDAQ” is also used to refer to the NASDAQ Composite, an index of more than 3,000 stocks listed on the NASDAQ exchange that includes the world’s foremost technology and biotech companies.

The STOXX Europe 600 Index is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. With a fixed number of 600 components, the STOXX Europe 600 Index represents large, mid and small capitalization companies across 18 countries of the European region: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United Kingdom.

The Bloomberg Commodity Index (BCOM) is calculated on an excess return basis and reflects commodity futures price movements. The index rebalances annually weighted 2/3 by trading volume and 1/3 by world production and weight-caps are applied at the commodity, sector and group level for diversification. Roll period typically occurs from 6th-10th business day based on the roll schedule.

Indices are unmanaged, and one cannot invest directly in an index. Index returns do not reflect a deduction for fees or expenses.