HOUSE_OVERSIGHT_026898.jpg
1.29 MB
Extraction Summary
1
People
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Organizations
1
Locations
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Events
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Relationships
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Quotes
Document Information
Type:
Financial analysis / investment strategy report
File Size:
1.29 MB
Summary
This document appears to be a page from a financial strategy report analyzing market conditions, specifically interest rates and recession probabilities. It argues that despite rising interest rates, the probability of a recession remains low (10%) due to positive economic indicators and low inflation. The text references S&P 500 debt structures and Federal Reserve policy projections through the end of 2019.
People (1)
| Name | Role | Context |
|---|---|---|
| Jerome Powell | Federal Reserve Chairman |
Mentioned regarding his recent commentary on FOMC direction and interest rate hikes.
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Organizations (6)
| Name | Type | Context |
|---|---|---|
| Investment Strategy Group |
Cited as a source for the data/chart.
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| Bloomberg |
Cited as a source for the data/chart.
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| Federal Reserve |
Central banking system whose policies are being analyzed.
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| FOMC |
Federal Open Market Committee, mentioned regarding policy decisions.
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| S&P 500 |
Stock market index mentioned in context of debt and interest expense.
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| House Oversight Committee |
Implied by the Bates stamp 'HOUSE_OVERSIGHT' at the bottom.
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Locations (1)
| Location | Context |
|---|---|
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United States, mentioned in the context of economic trend growth.
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Key Quotes (3)
"Stocks typically struggle when the cost of borrowing exceeds the nominal growth of the economy"Source
HOUSE_OVERSIGHT_026898.jpg
Quote #1
"We continue to maintain a low, 10%, probability of recession"Source
HOUSE_OVERSIGHT_026898.jpg
Quote #2
"Their stated goal is to extend this expansion “indefinitely.”"Source
HOUSE_OVERSIGHT_026898.jpg
Quote #3
Full Extracted Text
Complete text extracted from the document (1,572 characters)
3.2% (i.e. the cost of borrowing). Stocks typically struggle when the cost of borrowing exceeds the nominal growth of the economy (see Exhibit 4). Second, the recent backup in interest rates was driven primarily by improving real growth expectations, not higher inflation. This distinction is critical, because higher rates in response to improving real growth tend to benefit earnings sufficiently to overcome the downward pressure they place on valuation multiples. Finally, it will take a number of years before higher rates meaningfully impact aggregate S&P 500 interest expense, considering 91% of S&P 500 debt is fixed-rate and only 13% matures over the next two years.
[Empty box/placeholder with illegible small text at top left]
Source: Investment Strategy Group, Bloomberg.
Low Probability of Recession
We continue to maintain a low, 10%, probability of recession driven by:
• The positive trend of leading economic indicators
• Low levels of inflation
• The continued slow but steady pace of Federal Reserve interest rate hikes. We believe that Federal Reserve Chairman Powell’s recent commentary indicates that the FOMC will continue to be driven by data and financial market conditions. Their stated goal is to extend this expansion “indefinitely.”1 While the Federal Reserve dots point towards four more interest rate hikes by the end of 2019, we do not think that such hikes materially increase the odds of a recession in an economy that continues to grow at levels that are generally regarded as above trend growth in the US.
HOUSE_OVERSIGHT_026898
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