BMO Private Bank Report: U.S. Economy Reinvigorated Despite Fiscal Cliff Uncertainty

   BMO Private Bank Report: U.S. Economy Reinvigorated Despite Fiscal Cliff
                                 Uncertainty

- Rise in housing prices hints that Americans are ready to start spending

- Fiscal cliff continues to keep investors on edge

- Equity market suffered in Q3, with financials and energy shares the hardest
hit

- Rules and regulations aimed at banks and energy companies expected to take
effect in 2013

PR Newswire

CHICAGO, Nov. 26, 2012

CHICAGO, Nov. 26, 2012 /PRNewswire/ --According to BMO Private Bank's
December Outlook for Financial Markets Report, the U.S. economy is showing
positive signs of continued recovery with a variety of sectors witnessing
significant growth.

According to the report:

  oCorporate profits are at their highest levels since the early 1950s, with
    net profit margins at 10.7 percent
  oBoth 401(k) plans and home prices are rising, leading to a boost in
    consumer confidence
  oThe S&P 500 has rallied more than 60 percent since the first quantitative
    easing announcement at the end of 2008
  oMortgage rates cascaded to all-time lows in Q3, expanding home
    affordability by approximately 25 percent
  oRetail sales are up nearly five percent year-over-year

"Although Federal Reserve Chairman Bernanke's monetary plan has taken some
time to unfold, we're beginning to see evidence that it is working," said Jack
Ablin, Chief Investment Officer, BMO Private Bank. "If interest rates remain
as low as they currently are, they will boost equity and housing values and
embolden consumers. That, in turn, will boost corporate profits and
employment."

The Fiscal Cliff

As the January 2013 amendment deadline looms, investors are feeling wary that
the U.S. may lose its AAA credit Fitch Rating if the Fiscal Cliff is not
properly addressed. The BMO Private Bank Report notes:

  oTreasury bonds have been on the rise with traders concerned that the
    government will be forced to step in to fill the fiscal void
  oWith a full-percentage-point yield differential between two-year and
    10-year notes, investors are concerned that another recession may be on
    the horizon if no progress is made on the Fiscal Cliff
  oSeveral state and local governments continue to struggle to address their
    own fiscal conditions

Equity Markets Show Volatility

Equity markets fell in the third quarter of 2012, with investors concerned
about increased regulation and higher taxes. The financial and energy sectors
were affected the most.

  oGiven legislative uncertainty and slowing growth, U.S. equity markets
    retreated about 5.5 percent
  oThe S&P 500 fell 3.3 percent in the three sessions immediately following
    the U.S. election, and annual profits declined in Q3
  oYield-oriented telecom companies dropped more than four percent in the
    days following the election.
  oNearly half of Europe's Stoxx 600 companies failed to beat analysts'
    profit expectations.

China and America Share Challenges

According to the report, both the U.S. and China – the world's first and
second largest economies – face income inequality; this, in turn, is affecting
economic growth.

"Severe income inequality is not economically sustainable and consistent
inequality impairs economic growth," said Mr. Ablin. "At home, after decades
of productivity gains through global outsourcing investment in technology, the
difference between America's wealthy and everyone else widened. China, in
particular, also faces this challenge and could consider adopting a stronger
social safety net to reduce inequality and promote consumption."

Mr. Ablin notes that, while globalization has gone a long way towards bringing
two billion people out of poverty, income differentials within countries have
widened in the international arena.

Outlook for 2013

Looking ahead to 2013, investors can expect a series of rules and regulations
aimed at domestic banks and energy companies to take effect. Financial stocks
are now trading at a 19 percent discount, making them fairly priced when
taking into account the prospect of new regulations. Energy stocks are trading
about one per cent above their historical norm, making them overpriced.

The full report can be found at: www4.harrisbank.com/Insights/Publications

SOURCE BMO Private Bank

Website: http://www.harrisbank.com
Contact: Patrick O'Herlihy, Chicago, Patrick.O'Herlihy@bmo.com,
+1-312-461-6970, or Rachael McKay, Toronto, rachael.mckay@bmo.com,
+1-416-867-3996, or Carey Allen, Phoenix, carey.allen@bmo.com,
+1-480-558-6383, or Beth Copeland, Indianapolis, beth.copeland@bmo.com,
+1-317-269-1395
 
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