Investment Insights Podcast: October Market & Economic Outlook

magnotta_headshot_2016Amy Magnotta, CFASenior Investment Manager, Brinker Capital

On this podcast, Amy reviews third quarter market activity and the themes to monitor for the rest of the year. Here are some quick hits before you have a listen:

  • The third quarter was marked by a continuation of muted global growth with risk assets posting solid returns.
  • Expectations for the next Fed rate hike moved further out on the calendar from September to December, further fueling risk assets. Fed rhetoric may create the dynamic where “good news is bad news.”
  • U.S. economic data releases have been mixed, but lean positive. Stronger wage growth, low inflation and low unemployment levels leads us to believe that while we are likely late in the business cycle, there is still room for growth before the next recession.

Click here to listen to the full podcast. A PDF version of Amy’s commentary is available to download as well. Find it here >>

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. Brinker Capital Inc., a Registered Investment Advisor.

Staying Ahead of the Curve Despite Recent Volatility

After a strong surge in global financial markets in the first quarter of 2012, risk assets – equities, commodities, corporate credit – have sold off thus far in the second quarter. Uncertainties over global growth and Europe have reentered markets. At Brinker Capital, we are not surprised that some of the euphoria is being worked off. We would not be surprised to see further consolidation.

Several of our fundamental and technical indicators were showing signs of concern earlier this spring. At the end of the first quarter, the various Brinker discretionary portfolios reduced exposure to risk assets. Future signposts suggest the volatility could continue.

For those of you who follow our market outlook and quarterly portfolio calls, this might be familiar material. Some of the indicators we monitor were flashing warning signals:

  • Event risk – European elections, particularly in France and Greece, along with stalling reform initiatives in Spain and Italy.
  • Market fundamentals – economic indicators such as consumer and CEO confidence and economic surprises appeared to be peaking. The S&P 500 appeared to have discounted a lot of good news in valuations.
  • Sentiment – though investors maintained bullish sentiment (low levels of short interest), corporate insiders were selling stock in 2012, a change from insider purchases seen last fall.

As a result, we reduced risk exposures across our various discretionary portfolios.

  • Destinations and Personal Portfolios reduced exposure to risk assets and were positioned underweight risk compared to a neutral positioning.
  • Crystal Strategy I reduced its portfolio beta from positive to now a modestly negative beta by reducing risk and adding inverse exposures designed to rise in falling markets.

We will continue to monitor the following signposts over the near term and actively manage our broadly diversified portfolios as appropriate.

  • U.S. – Fed meetings later in June and prospects for further Quantitative Easing. Later this summer, we need progress on addressing the massive fiscal cliff to be reached early in 2013, regardless of the outcome in November elections.
  • Europe – second round of Greek elections on June 17 and progress (or absence thereof) regarding further European integration (bank deposit guarantee, adding capital to weak banks, stabilization in bond yields).
  • China – further, but moderate, monetary and fiscal stimulus, enough to avert a hard landing, but not enough to bail out weak global growth or produce sizzling China growth. The government is happy to see cooling in property markets.