• Political rhetoric distorts the realities of today’s global economy
  • Better education and innovation, not protectionism, are the answer
  • Intelligently constructed trade agreements will likely help U.S. workers

Consumers, businesses, and government are all contributing to moderate projected growth for the U.S. economy into mid-2018. Equity markets have fully recognized this by reaching high levels, justified by record corporate earnings and dividends.

Consumers are enjoying rising disposable incomes, rising confidence, a strong job market, and increasing home values. These factors support City National Rochdale’s outlook for moderately solid consumer spending into mid-2018. Businesses continue to earn solid profits, which, along with good business confidence, means continuing positive trends for job creation and capital investment.

We project continued real wage gains for consumers in the year ahead, as unemployment rates are low and competition for labor is tightening. A tax cut would add even more disposable income. As Chart 1 shows, U.S. median weekly earnings are increasing for all economic groups, with the more positive increases occurring among workers with a high propensity to spend all their earnings. 


Equities and bonds have both generated positive returns in 2017, a situation that is unlikely to continue over the next two or three years. At some point, a decline in interest rates, although generating positive fixed income returns, would signal an economic slowdown that is likely to be accompanied by deteriorating earnings and equity prices.

Alternately, the solid economic growth we are now experiencing will likely continue, leading interest rates to rise and fixed income returns to weaken. Our current view is that equities will have a better chance to generate positive returns as a globally synchronized expansion continues. Our support for this comes from expectations that both U.S. and global GDP growth will trend positively during 2018.


While we are positive on the equity outlook for the next 12 months, we also recognize that we are in the later stages of this long bull market and economic expansion. This means investors should calibrate projected equity returns based upon the rate of future earnings growth, which we forecast at 4-6%. If corporate and individual taxes are reduced for 2018, that would be additive and potentially lift earnings growth into the 6-8% range.

Our projections require that interest rate increases remain controlled over the forecast horizon. We are watching the Fed’s actions closely. While current inflation indications are lower than expected, Fed policy is highly dependent on wage trends and how overall core CPI behaves. We expect moderate rate increases between now and the end of 2018, but not enough to stop the economic expansion for at least another year.

For clients with diversified portfolios and long-term investment horizons, the key investment decision is always how much to allocate to which asset class and when to do so. For many years now, City National Rochdale clients have had an over-allocation to U.S. equities and opportunistic income asset classes. This has contributed beneficially to our asset allocation investment returns.

City National Rochdale’s asset allocation decisions (not individual stock or bond decisions), have produced strong additive returns relative to a traditional balanced allocation of 60% to core equities and 40% to core fixed income

Although we are enjoying this long bull market and economic expansion, we believe the next changes to our asset allocation positioning will reflect our expectation that all good things must eventually end. We will communicate the decisions of City National Rochdale’s asset allocation committee as we make these changes. These decisions will make important contributions to client portfolio returns over the subsequent 12-18 months.

City National Rochdale has added substantial value to client portfolios through asset allocation during this bull market, and we believe our fundamental active investment decision-making should continue to provide competitive returns compared to passive approaches.

Keep Reading: Synchronized Global Economic Growth a Benefit to the U.S.

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.

Concentrating assets in the real estate sector or REITs may disproportionately subject a portfolio to the risks of that industry, including the loss of value because of adverse developments affecting the real estate industry and real property values. Investments in REITs may be subject to increased price volatility and liquidity risk; concentration risk is high.

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 in 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 Income Tax).

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. This risk is heightened with investments in longer-duration fixed income securities and during periods when prevailing interest rates are low or negative. 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, which are usually called “high yield” or “junk bonds,” are typically in weaker financial health and such securities can be harder to value and sell and their prices can be more volatile than more highly rated securities. While these securities generally have higher rates of interest, they also involve greater risk of default than do securities of a higher-quality rating.

Investments in emerging market 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 market bonds can have greater custodial and operational risks, and less developed legal and accounting systems than developed markets.

Yield to Worst is the lower of the yield to maturity or the yield to call. It is essentially the lowest potential rate of return for a bond, excluding delinquency or default.

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 & Poor’s (S&P) 500 Index represents 500 large U.S. companies. The comparative market index is not directly investable and is not adjusted to reflect expenses that the SEC requires to be reflected in the fund’s performance.

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