President Trump, trade & the markets…Is it time to hit the panic button?

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Tim Holland, CFASenior Vice President, Global Investment Strategist

On this week’s podcast (recorded March 23, 2018), Tim discusses the Trump Administration’s trade policies and its impact on Brinker Capital’s portfolio positioning.

Quick hits:

  • Investors have been fixated on the Trump Administration’s trade policy. First, the proposed tariffs on steel and aluminum imports and now talk of much broader based action directed at China.
  • After rallying strongly off its February lows, the S&P 500 has been correcting on increasing concerns protectionist trade policies will torpedo consumer and corporate sentiment and spending, and ultimately the stock market.
  • We remain bullish on the economy and risk assets, including US stocks. Why? Simply put, the hard and soft economic data – or maybe said another way, reality, not rhetoric – tells us we should.
  • 4 BIG BOXES that help drive our thinking: fiscal policy, monetary policy, economic fundamentals, and sentiment.

For the rest of Tim’s insight, click here to listen to the audio recording.

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The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a registered investment advisor.

 

Investment Insights Podcast: 1 in 9.2 quintillion

Chris HartSenior Vice President

On this week’s podcast (recorded March, 16 2018), Chris talks about the parallels between March Madness and investing.

 

Quick hits:

  • Much like the task of filling out a perfect bracket, which currently stands at 1 in 9.2 quintillion, the chances of correctly predicting drivers of future returns is nearly impossible even for skilled investors.
  • Many have heard the term momentum in the stock markets, and behavioral finance will tell you that novice investors chase performance by allocating to last year’s winners under the guise that results for this year will be the same.
  • While picking the occasional upset is possible, most of the time fans are wrong relying on intuition or gut feel to pick an upset, and it costs them.
  • Brinker Capital knows how difficult it is to achieve successful outcomes, and has investment disciplines in place to help protect and build wealth over the long term.

For the rest of Chris’s insight, click here to listen to the audio recording.

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The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Investment Insights Podcast: March 2018 market and economic outlook

Leigh Lowman, CFA, Investment Manager

On this week’s podcast (recorded March 9, 2018), Leigh provides a brief review of February markets.

 

Quick hits:

  • Market volatility came roaring back in February with the VIX index surging to levels last seen in 2015 and washing out signs of complacency that were present earlier in the year.
  • The S&P 500 Index finished the month down -3.7% and is up 1.8% year to date.
  • Developed international equities underperformed domestic equities for the month.
  • Within fixed income all sectors posted negative returns.
  • Overall, we continue to remain positive on risk assets over the intermediate-term.

Listen_Icon  Listen to the audio recording.

Read_Icon  Read the full March Market and Economic Outlook.

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The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

 

Vlog – Trade wars are bad for business; Fortunately, we aren’t in one, yet

Brinker Capital’s Global Investment Strategist, Tim Holland, provides perspective on the Trump Administration’s tariff announcement.

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The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a registered investment advisor.

Investment Insights Podcast: Fiscal policy takes the baton from monetary policy – What it means for the economy & risk assets

Tim Holland, CFA, Senior Vice President, Global Investment Strategist

On this week’s podcast (recorded February 23, 2018), Tim takes a closer look at US fiscal policy and how it might impact the economy and markets as we move through 2018.

Quick hits:

  • For now, we see fiscal policy as a net positive for economic growth and risk assets, particularly equities.
  • We also don’t see interest rates and inflation as a risk to the economy and markets.
  • We do think rates are biased higher, which is one reason we are conservatively positioned within fixed income.
  • Increased investor concern over higher rates and inflation is driving greater market volatility, something we all lived through earlier this month.

For Tim’s full insights, click here to listen to the audio recording.

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The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Vlog – Market volatility: It’s back! Why? And what comes next?

Brinker Capital’s Global Investment Strategist, Tim Holland, provides perspective around recent market volatility, what triggered it and what impact it’s having on our thinking and portfolio positioning.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

February 2018 market and economic outlook

Lowman_FLeigh Lowman, CFA, Investment Manager

Despite the pick-up in volatility at the end of January, risk assets continued their upward ascent throughout the month. Expectations surrounding the implementation of the newly passed tax reform bill and the weakening US dollar served as positive catalysts for the month. Macroeconomic data was mixed; fourth quarter real GDP growth came in slightly below expectations but manufacturing activity accelerated and the US jobs report was positive. Although we have seen initial signs of rising inflation, levels remain subdued as low unemployment has yet to translate into meaningful wage growth. We expect the Federal Reserve (Fed) to remain on track with interest rate normalization and the positive, albeit choppy, market momentum we have seen to date indicates that markets can likely withstand an additional Fed rate hike in March.

The S&P 500 Index was up 5.7% for the month with cyclicals outperforming defensive sectors. Consumer discretionary (+9.3%) led while tax cuts and a solid job market served as positive catalysts. Information technology (+7.6%) and financials (+6.5%) also posted strong returns for the month. Utilities (-3.1%) and REITs (-2.0%) were down as traditional bond proxy sectors experienced headwinds amidst rising interest rates. Growth outperformed value and large-cap outperformed both mid-cap and small-cap equities.

Developed international equities (+5.0%) performed in line with domestic equities. Fundamentals within the Eurozone continued to improve and sentiment is high. The focus remains on European Central Bank policy and how the reduction of its quantitative easing purchases will impact markets. Emerging markets were up 8.3%. A weaker dollar and stronger demand for commodities served as tailwinds for both emerging Asia and Latin America regions.

Feb. 2018 Market Outlook

The Bloomberg Barclays US Aggregate Index was down -1.2% for the month. Interest rates surged with 10-year Treasury yields increasing 31 basis points, ending the month at 2.7%. Tightening monetary policy and improving US growth expectations will likely continue to put upward pressure on the long end of the yield curve. High yield was the only sector to post positive returns in January, as credit spreads continued to grind tighter. Like taxable bonds, municipals were negative for the month.

We remain positive on risk assets over the intermediate-term, although we acknowledge we are in the later innings of the bull market and the second half of the business cycle. While this cycle has been longer in duration compared to history, the recovery we have experienced has been muted, supported by the extended recovery period. While our macro outlook is biased in favor of the positives, the risks must not be ignored.

We find a number of factors supportive of the economy and markets over the near-term.

  • Pro-growth policies of the Administration: The Trump administration has delivered a new tax plan and a more benign regulatory environment. We could see additional government spending on infrastructure in 2018.
  • Synchronized global economic growth: Growth in the US has started to accelerate, and growth in both developed international and emerging economies has meaningfully improved. The tax cuts could also help to boost GDP growth in 2018.
  • Improvement in earnings growth: Corporate earnings growth has improved globally and corporate tax reform should further benefit US-based companies.
  • Elevated business sentiment: Measures like CEO Confidence and NFIB Small Business Optimism are at elevated levels. This typically leads to additional project spending and hiring, which should boost growth. The corporate tax cut should also benefit business confidence and lead to increased capital spending.

However, risks facing the economy and markets remain, including:

  • Fed tightening: The Fed will continue to tighten monetary policy, with at least three interest rate hikes priced in for 2018. We may see tightening from other global central banks as well.
  • Higher inflation: Current levels of inflation are muted but inflation expectations have ticked higher and the reflationary policies of the Administration could further boost levels. Should inflation move higher, the Fed may shift to a more aggressive tightening stance.
  • Geopolitical risks: Geopolitical risks including trade policies and global challenges could cause short-term market volatility.

Despite the volatility experienced over the last week, the technical backdrop of the market remains favorable, credit conditions are supportive, and global economic growth is accelerating. So far President Trump’s policies are being seen as pro-growth, and business and consumer confidence are elevated. The onset of new policies under the Trump administration and actions of central banks may lead to higher volatility, but our view on risk assets remains positive over the intermediate-term. Higher volatility can lead to attractive pockets of opportunity we can take advantage of as active managers.

Brinker Capital Barometer (as of 1/5/18)

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Source: Brinker Capital. Views expressed are for informational purposes only. Holdings subject to change. Not all asset classes referenced in this material may be represented in your portfolio. Indices are unmanaged and an investor cannot invest directly in an index. All investments involve risk including loss of principal. Fixed income investments are subject to interest rate and credit risk. Foreign securities involve additional risks, including foreign currency changes, political risks, foreign taxes, and different methods of accounting and financial reporting. S&P 500: An index consisting of 500 stocks chosen for market size, liquidity, and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of US equities and is meant to reflect the risk/return characteristics of the large-cap universe. Companies included in the Index are selected by the S&P Index Committee, a team of analysts and economists at Standard & Poor’s. Bloomberg Barclays US Aggregate: A market capitalization-weighted index, maintained by Bloomberg Barclays, and is often used to represent investment grade bonds being traded in United States.

 

The do’s and don’ts for periods of market volatility

Crosby_2015-150x150Dr. Daniel Crosby Executive Director, The Center for Outcomes & Founder, Nocturne Capital

We know it has been a stressful week for everyone involved in the market. In times like this, knowing what not to do is just as important as knowing what to do. Therefore, we created a list of things you should and shouldn’t be doing in periods of market volatility.

Do:

  • Do know your history
    • Despite what political pundits and TV commentators would have you believe, this is not an unusually scary time to be alive. Although you would never know it from watching cable, the economy is growing and most quality of life statistics have been headed in the right direction for years! Markets always have and always will climb a wall of worry, rewarding those who stay the course and punishing those who succumb to fear. Warren Buffet expressed this beautifully when he said, “In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shock; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.” Such it has ever been, thus will it ever be.
  • Do take responsibility
    • Which of the following do you think is most predictive of financial performance: a) market timing b) investment returns or c) financial behavior? Ask most men or women on the street and they are likely to tell you that timing and returns are the biggest drivers of financial performance, but the research tells you another story. In fact, the research says that you – that’s right – you, are the best friend and the worst enemy of your own portfolio. What happens in the financial markets in the coming years is absolutely out of your control. But, your ability to follow a plan, diversify across asset classes, and maintain your composure is squarely within your own power. At times when market moves can feel haphazard, it helps to remember who is really in charge.
  • Do work with a professional
    • Odds are that when you chose your financial advisor, you selected him or her because of his or her academic pedigree, years of experience, or a sound investment philosophy. Ironically, what you likely overlooked entirely is the largest value he or she adds – managing your behavior. Studies from across the industry put the added value from working with an advisor at 2 to 3% per year. Compound that effect over a lifetime and the power of financial advice quickly becomes evident.

Don’t:

  • Don’t equate risk with volatility
    • Repeat after me, “volatility does not equal risk.” Risk is the likelihood that you will not have the money you need at the time you need it to live the life you want to live. Nothing more, nothing less. Paper losses are not “risk” and neither are the gyrations of a volatile market.
  • Don’t focus on the minute-to-minute
    • Despite the enormous wealth-creating power of the market, looking at it too closely can be terrifying. A daily look at portfolio values means you see a loss 46.7% of the time, whereas a yearly look shows a loss merely 27.6% of the time. Limited looking leads to increase feelings of security and improved decision-making.
  • Don’t give into action bias
    • At most times and in most situations, increased effort leads to improved outcomes. Want to lose weight? Start running. Want to learn a new skill set? Go back to school. Investing is that rare world where doing less actually gets you more. James O’Shaughnessy of “What Works on Wall Street” relates an illustrative story of a study done at Fidelity. When they surveyed their accounts to see which had done best, they uncovered something counterintuitive: the best-performing stocks were those that had been forgotten entirely.

The Center for Outcomes, powered by Brinker Capital Holdings, has developed an educational program to help advisors employ the value of behavioral alpha across all aspects of their work – from business development to client service and retention. To learn more about The Center for Outcomes and Brinker Capital, call us at 800.333.4573.

Brinker Capital is a privately held investment management firm with $21.7 billion in assets under management (as of December 31, 2017). For 30 years, Brinker Capital’s purpose has been to deliver an institutional multi-asset class investment experience to individual clients. Brinker Capital’s highly strategic, disciplined approach has provided investors the potential to achieve their long-term goals while controlling risk. With a focus on wealth creation and management, Brinker Capital serves financial advisors and their clients by providing high-quality investment manager due diligence, asset allocation, portfolio construction, and client communication services. Brinker Capital, Inc. is a registered investment advisor.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a registered investment advisor.

 

 

 

Investment Insights Podcast: The yield curve – What is it and why does it matter?

Tim Holland, CFA, Senior Vice President, Global Investment Strategist

On this week’s podcast (recorded January 26, 2018), Tim discusses a topic that’s been receiving significant attention from the media and investors, and that’s the yield curve.

 

Quick hits:

  • The yield curve is simply the spread or difference between the yield on the 10-year US Treasury Note and the 2-year US Treasury Note.
  • Usually, our economy is expanding and the yield curve is positively sloped.
  • Two forces typically cause the yield curve to flatten or invert: 1. the Federal Reserve raising the Fed Funds Rate, and 2. when investors continue to invest in the long end of the yield curve.
  • The yield curve has been flattening of late. So do we at Brinker think it might be signaling a recession?

For Tim’s full insights, click here to listen to the audio recording.

 

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The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Investment Insights Podcast: Investor sentiment vs. corporate sentiment

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Jeff Raupp, CFA
Director of Investments

On this week’s podcast (recorded January 19, 2018), Jeff focuses on two indicators we include on the Brinker Capital Market Barometer, namely investor sentiment and corporate sentiment, and our thoughts on how they impact markets.

Quick hits:

  • If investors are extremely optimistic their expectations are high, and a certain degree of good news is already priced into the market, whereas bad news may come as a surprise and cause markets to pull back.
  • If companies have a high level of confidence, they’re more likely to invest in capital expenditures or hire additional people, both of which are good for the overall economy.
  • Intermediate-term indicators like corporate sentiment are ones we weigh heavily. While short-term indicators like investor sentiment are considered, their impact on positioning is much smaller.

For Jeff’s full insights, click here to listen to the audio recording.

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The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a registered investment advisor.