quarterly update


Equity Markets Retreat in Third Quarter
World Economy Not Falling Off a Cliff
Are Pipeline Stocks Attractive in a Weak Energy Environment?
Emerging Market High Yield and the Impact of Fed Rate Tightening
Year-End Tax Planning Tips to Pursue Now

From the Desk of 

The choppy seas we had anticipated for some time arrived in the third quarter, with market volatility spiking as investors reacted to China’s currency devaluation and more generalized fears that the global and U.S. economic expansions were faltering. The decline in equity prices was swift, marked by a 1,000-point drop in the Dow on August 24 and an overall retreat that left the S&P 500 down 6.4% for the quarter – its worst performance since the same period in 2011. Other markets, especially those of emerging nations, declined even more. 

We believe the heightened volatility in the equity markets reflects the uncertainty over U.S. corporate earnings and the outlook for important Asia economies. While these are valid concerns, our view is that over the next few quarters we will likely see U.S. earnings and global economies stabilize and resume their moderate growth trends. We view the slowing in China, in particular, as a reflection of two factors: the slowing in Europe and the slowing in the growth trend in investment and infrastructure spending in China. Neither of which we think will escalate into a hard landing. 

Our base case expectation is for the underlying health of the U.S. economy to remain resilient enough to sustain reasonable GDP growth into 2016. We believe Europe will remain a sub-par growth economy for many years ahead until it undertakes meaningful structural and monetary reforms. The odds of such, we view, are low. China needs to change its growth drivers, and needs to generate more from domestic consumption and services – a shift that will take a very long time.  

The recent decline also has presented opportunities, as equity valuations in general are now more appropriate to the slow growth mode we expect to remain in place throughout 2016. 

As we move through the final quarter, the focus will shift to 2016 and, with uncertainty not yet resolved, we believe investors will bid time during the next few months. After the first quarter in 2016, we think enough uncertainty will be reduced to enable investors to see the slow growth trend as one that is sustainable.  

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.

City National Rochdale, LLC is a Registered Investment Advisor and wholly owned subsidiary of City National Bank.

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 off er 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 fi xed income investing. These risks may include interest rate, call, credit, market, infl ation, government policy, liquidity, or junk bond. When interest rates rise, bond prices fall. The yields and market values of municipal securities may be more aff ected 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, fi scal 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 EAFE Index is an equity index which captures large and mid cap representation across developed markets countries around the world, ex-cluding the U.S. and Canada. Developed markets countries in the MSCI EAFE Index include: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the UK.

MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.

The Barclays Aggregate Bond Index is comprised of U.S. government, mortgage-backed, asset-backed, and corporate fixed income securities with maturities of one year or more.

Producer Price Index measures the average changes in prices received by domestic producers for their output.

Barclays U.S. High Yield Index covers the universe of fi xed rate, non-investment grade debt. Eurobonds and debt issues from countries designated as emerging markets (sovereign rating of Baa1/BBB+/BBB+ and below using the middle of Moody’s, S&P, and Fitch) are excluded, but Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included. Original issue zeroes, step-up coupon structures, 144-As and pay-in-kind bonds (PIKs, as of October 1, 2009) are also included.

J.P. Morgan’s Corporate Emerging Markets Bond Index Broad Diversifi ed High Yield (CEMBI BD HY) is a market capitalization weighted index consisting of US-dollar-denominated emerging market non-investment grade rated corporate bonds. According to J.P. Morgan, this index limits the weights of those index countries with larger corporate debt stocks by only including a specifi ed portion of these countries’ eligible current face amounts of debt outstanding.

Alerian MLP Index is the leading gauge of large- and mid-cap energy Master Limited Partnerships (MLPs).

Barclays U.S. Corporate BBB OAS Index is the Baa component of the U.S. Corporate Investment Grade index. The U.S. Corporate Investment Grade Index is publicly issued U.S. corporate and specified foreign debentures and secured notes that meet the specified maturity, liquidity, and quality require-ments. To qualify, bonds must be SEC-registered.

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