Session IV: Financial Markets Outlook - Danielle DiMartino Booth

Danielle DiMartino Booth C E O a n d D i r e c t or o f I n t e l l i ge n c e

J u ly 12, 2 018

Danielle DiMartino Booth

Quill Intelligence

CEO & Director of Intelligence

Seasoned Thought Leaders

Wa l l S t r e e t

QI Analytics

Fe d e r a l Re s e r v e National Best Seller

Cray Supercomputer I n t e l l i g e n c e G a t h e r i n g To o l s e t s Graph Analytics

G l o b a l S p ea ke r D A I LY – T h e D a i l y F e a t h e r W E E K LY – M o n e y S t r o n g ( T h e Quill) Fu t u r e I n d u s t r y S p e c i a l i z e d Re p o r t s , B e s p o ke Re s e a r c h , S e l f- s e r v i c e D a t a Modeling

T h e Tru e $ 2 . 5 Tri l l i o n I n v e s t m e n t G r a d e B o n d M a r k e t D w a r f e d b y $ 5 Tri l l i o n i n H i g h R i s k D e b t

Total =$7.5 Trillion True High Grade Bonds ‘BBB’ Bonds High Yield Bonds Leveraged Loans

$1.22 Trillion $2.55 Trillion $1.21 Trillion

$2.56 Trillion

T h i s I s n ’ t You r G r a n d fat h e r ’ s I n v e s t m e n t G r a d e S p r e a d BBB share % of IG (right)

250

BBB-A spread(bps, left) 50%

200

40% 150

30% 100

20%

50

10%

0

0%

'90

'92

'94

'96

'98

'00

'02

'04

'06

Source: Barclays, Bloomberg, Morgan Stanley. Recessions shaded.

'08

'10

'12

'14

'16

'18

Worsening US Micro Fundamentals US IG Net Leverage (left)

US IG Interest Coverage (right)

2 .4

12

2 .2

11

2 .0

10

1 .8

9

1 .6

8

1 .4

7

1 .2

6

1 .0

'9 2

'9 4

'9 6

'9 8

'0 0

Source: Morgan Stanley. Recessions shaded.

'0 2

'0 4

'0 6

'0 8

'1 0

'1 2

'1 4

'1 6

'1 8

5

Earnings Per Share Growth with and Without Share Buybacks Earnings Per Share Earnings per Share w/0 Share-Buy Backs

130

EPS Growth% (left)

9%

EPS Growth% w/o Share-BuyBacks (right)

120 110

7%

100

5%

90

3%

80

1%

70 -1%

60

-3%

50

-5%

Source: Artemis

Sept 17

Mar 17

Sept 16

Mar 16

Sept 15

Mar 15

Sept 14

Mar 14

Sept 13

Mar 13

Sept 12

Mar 12

Sept 11

Mar 11

Sept 10

Mar 10

Sept 09

Mar 09

40

S ho uld I n v e s t ors L i s t e n to Stocks or B o nds?

US 2s10s Yield Curve (%)

S&P 500 (right)

Fed Funds Target (%)

Source: Bloomberg

'1 8

'1 6

'1 4

'1 2

0 '1 0

-2 '0 8

500

'0 6

0

'0 4

1000

'0 2

2

'0 0

1500

'9 8

4

'9 6

2000

'9 4

6

'9 2

2500

'9 0

8

'8 8

3000

'8 6

10

T h e r e B u t For t h e G r a c e o f L a g G o C e n t r a l B a n k e r s

First Inversion

Fed Hikes after Inversion

Start of Recession

December 1988 February 2000 December 2005

Fed hiked 112.5 bps Fed hiked 75 bps Fed hiked 100 bps

Jul 1990 Mar 2001 Dec 2007

THANK YOU Danielle DiMartino Booth danielle@dimartinobooth.com