Home News Despite Equity Market Volatility, Financial Services Experts Optimistic About 2019

Despite Equity Market Volatility, Financial Services Experts Optimistic About 2019

After a year marked by trade disputes and market volatility, experts in the financial services sector are urging consumers not to panic or lose hope in the industry and the strength of the national economy in 2019. “We are cautiously optimistic for the U.S. economy in 2019 because consumer confidence is high and there is the historically low unemployment rate of 3.9%,” Jack Ferry, vice president of communications at the American Financial Services Association, told the Business Journal via e-mail.

Ferry said association members, most of whom deal in traditional installment lending companies and automotive finance companies, were reassured by a slight increase in sales of new cars and light trucks. “An anticipated slump in the vehicle sales did not materialize in 2018 as sales of new cars and light trucks held steady,” Ferry said. “This is one economic indicator that reflects consumer confidence in the U.S. economy.”

Other factors that contributed to the association’s positive outlook were low interest rates and rising wage rates, Ferry added. Other experts in the financial services industry have made similar assessments. “The strength of households and the banking sector will promote stability in the U.S. economy, despite the headwinds,” Robert Dye, chairman of AFSA’s Economic Advisory Committee and chief economist at Comerica Bank said in a recent American Bankers Association statement.

Dye said he expects interest rates to remain low, with “no more than two 25-basis point increases. The Federal Reserve is likely to achieve a soft landing for this economy with healthy labor markets and inflation holding near 2%,” he said. Similarly, Dye and fellow members of the committee are expecting 30-year mortgage rates to close the year below 5%.

Despite their confidence in the economy and the financial services sector, experts are foreseeing changes and challenges ahead. “A range of developments pose threats, particularly cooling global growth, recent financial market volatility, ongoing trade tensions and political uncertainty,” Dye said.

“Everyone’s a little shaken up, justifiably so,” Hank Berkowitz, principal of HB Publishing & Marketing Company LLC, agreed. Together with The Financial Awareness Foundation, Berkowitz has been conducting a survey of wealth advisors, seeking to feel the pulse of the industry and its clients going into the new year.

Based on a preliminary analysis of responses, Berkowitz is expecting some changes in the industry in 2019. Due to market volatility, “[for] the advisors who are making their money selling investment products, it could be a rough year,” Berkowitz said. However, he noted, experienced estate planners and financial advisers are likely to find a more welcoming market. “The easy money has been made. Now you need an expert to help you,” he concluded.

Local experts, despite expressing similar concerns about a volatile market and geopolitical instability, are hopeful that their guidance will be valued and that their clients will continue to see the effect of a moderately growing economy.

Kris Allen
Senior Bank Manager, First Bank Bixby Knolls
We think the Long Beach financial services industry, much like financial services nationally, is more stable now than it has been in a long time and certainly looks a lot healthier now than it did pre-2008 crisis. Lenders tend to do well in environments where interest rates are trending upward, and we have had an upward trend for several years now; banks and other lenders should see the benefit of this becoming more evident in 2019. The trending upward of interest rates, though, has been primarily located in short term rates with longer term rates remaining mostly flat and this has led to a more cautious view by some. Nevertheless, the key fundamentals of our economy remain strong with the Long Beach unemployment rate at 4.1%, its lowest level in nearly 30 years, and national GDP growth at 3.4%, which is significantly higher than its approximately 2% average since 2009. Financial innovation coupled with technological innovation and skillful risk management offer tremendous promise for the industry. Those institutions that lead with innovation and navigate risk effectively will see greater success as they become an even more relevant component to the economic stability and growth of Long Beach.

Trent Bryson
CEO, Bryson Financial
While everyone is seemingly waiting for a crash, I believe the financial services industry will continue to see increased volatility, but I don’t foresee a crash happening. There will be intermittent market corrections with the increased volatility so it will be more important than ever for firms to be well positioned to handle the economic volatility. As far as transactions, we expect mergers and acquisitions to continue strong through 2019 with a possible slow down in 2020. The Private Equity markets still have a large appetite for companies in the 5m to 20m EBITDA range. This appetite holds especially true for stable, family owned businesses that are looking to either take chips off the table, or support a management buyout of legacy owners.

Blake Christian
Partner, HCVT (Holthouse Carlin & Van Trigt) LLP
In light of the federal shutdown, the US-China tariff impasse, the erratic stock market at year-end, rising interest rates and a cooling residential real estate market, I am less optimistic about the US and global economy today than I was six months ago. Despite my expectations of a slowing economy, I do anticipate the public accounting sector to have another strong year in 2019 as we continue to implement the extensive 2018 federal tax changes and assist our clients with business acquisitions, dispositions and geographic expansion. In a downturn, professional service firms will generally experience some fee pressure from clients, but companies will also generally be requesting more tax, accounting and strategic planning services as they seek new ways to retain more of their profits – and in some cases – just try and survive. A downturn will also present many acquisition opportunities for stronger companies as weaker companies lose their banking relationships and private funding. We have a large mergers and acquisitions practice that should be very busy. We are also very busy assisting clients with establishing Opportunity Zone Funds. Companies that can quickly adapt to the changing business environment will be the beneficiaries. The fast will eat the slow rather than the historic big eating the small.

Michael Miller
President & CEO, International City Bank
The small business boom in Long Beach should continue well into 2019 and beyond opening up the door for businesses, old and new, to need a new bank. Small businesses are known to have an expectation to be recognized for who they are first, and second what they do. The greater Los Angeles area, including Long Beach, remains one the largest manufacturing centers in the nation, is a global gateway for trade and services and is the world’s entertainment hub, therefore drawing entrepreneurs, small business owners and risk takers from around the globe. California, particularly Los Angeles County, has and will continue to outpace the nation in economic growth. Part of this is due to the expected trend of personalization in 2019, which is why ICB is opening its door to personal checking accounts to further support current small business owners needs for financial services and needs for a financial institution to connect with them and help them grow their business. Check out our website (icb.biz) later this month for our new Kasasa Cash and Kasasa Saver deposit accounts and sign up on-line!

Henry Walker
President, Farmers & Merchants Bank
I think that we continue to be positive here in 2019, although we do have a level of disruption via our political and geopolitical situations in the world causing a little consternation and additional contemplation of the industry and investments at this time. The stock market has obviously had fluctuations, but again, it seems to be more that consumer confidence is waning a little bit or questioning where we’re at. I anticipate 2019 to be a good year. I do expect the Federal Reserve to perhaps moderate to one rate hike, because they have essentially doubled interest rates in the U.S. with the rise that they have initiated. Banks that have a long-term focus on customer relationships, like Farmers & Merchants, will continue to do quite well in both up and down markets, while others will have to adjust their business models.

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