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Revisiting This Important Loan Category

CAMS Weekly View from the Corner – Week ending 7/13/2018

July 16, 2018

In recent years we have intermittently looked at the important loan category known as Commercial & Industrial Loans.  We occasionally share a peek of this category because of the important message it offers us relative to overall economic activity.

These are loans taken out by businesses and corporations to fund anything from general business expansion to extensive capital investments.

Our previous look at this category dated back to last fall as we shared the level of this loan category and its on-going trend to that point was continuing to offer notable concerns.

The most recent results reflect a continued and renewed upward trend.  Here in 2018 previous concerns have turned to optimism via the consistent trend that has unfolded.


The above chart depicts C&I loan growth rates for the last five years.  This reflects the percentage growth rate compared to the previous year on a rolling basis.  We are now seeing growth rates north of 5% whereas in latter 2017 this category was approaching near zero percent growth.

Since 1950 there have been seven timeframes where this loan category went to negative growth rates and in every experience the economy was either in or leading to a recession.  There were other recessions since 1950 where C&I loan growth rates held positive but were trending down as well.

The takeaway is when trending down consistently concerns of a recession increase.  When this category goes negative recessions are a near certainty.  Through this lens it is important to see the improving rate of growth depicted above.

The last thing our historically expensive markets want to meet up with is anything close to a recession as that would surely present downside issues quicker than most would expect.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio

Footnote:

H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.

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