Market Perspectives — Q3 2016

Economy

• The US economy is in one of the longest expansions on record, but has generated the lowest cumulative trough-to-peak growth since WWII; thus, the economy does not appear to have much risk of overheating in the near term
• Recession risk remains modestly low, as our outlook for GDP growth remains around 2%
• Inflation is likely to remain below 2%; contributing factors include lower energy prices, a strong dollar, and limited wage growth
• Despite a slight uptick in the unemployment rate from more workers entering the workforce, labor markets continue to remain relatively strong
• The Fed will likely wait until after the election to raise rates, but the pace of future increases will likely remain much slower than historical monetary tightening cycles

Fixed Income

• Continued Fed action could lead to nominal increases in short-term rates
• Intermediate and longer-term yields will likely remain constrained, in part due to accommodative global monetary policies
• Overall, an environment of historically low rates is likely to continue
• Further gains this year in bonds may be limited due to the appreciation already realized year-to-date
• Given this low-rate environment, bond portfolios should focus on diversification rather than solely stretching for yield

Equity

• Presidential politics will continue to create headline noise, but history indicates presidential elections have little impact on overall market performance
• US valuations may not be stretched when considering the current low rate environment; further market advances are more likely to come from corporate earnings growth than increases in the price-earnings ratio
• We believe attractive to fair valuations exist in many international markets and accommodative monetary policies may provide tailwinds to Developed Equity markets
• International markets may continue to post strong returns measured in their local currency, but returns may be dampened if the dollar continues to appreciate
• Emerging markets have performed well this year and appear to be poised for stronger economic growth than the slower-growth prospects of developed markets

Alternatives

• Real Assets have posted strong year-to-date returns, but further near-term advances could be limited due to low inflation expectations
• Absolute Return strategies fared well during the Brexit selloff and should continue to help protect against market volatility and augment below-average fixed income return expectations

The INTRUST Market Perspectives are the consensus of the INTRUST Bank, N.A. ("INTRUST") Wealth Investment Strategy team and are based on third party sources believed to be reliable. INTRUST has relied upon and assumed, without independent verification, the accuracy and completeness of this third party information.

INTRUST makes no warranties with regard to the information or results obtained by its use and disclaims any and all liability arising out of the use of, or reliance on the information.

The information presented has been prepared for informational purposes only. It should not be relied upon as a recommendation to buy or sell securities or to participate in any investment strategy. The Forward–Looking Perspectives are not intended to, and should not, form a primary basis for any investment decisions. This information should not be construed as investment, legal, tax or accounting advice. Past performance is no guarantee of future results.